US Dollar settles down and turns flat after French turmoil could end quickly
- The US Dollar touch softer on some profit-taking after its steep surge registered on Monday.
- A vote of no confidence is on the table for Wednesday in France, while elections are not foreseen until 2025.
- The US Dollar Index drops back to the lower end of 106.00, failing to hold gains above 106.50.
The US Dollar (USD) is giving back some of its Monday's gains, with the US Dollar Index (DXY) trading in the lower end of 106.00 on Tuesday, as traders take profits after the steep surge seen at the beginning of the week. The move comes even as investors remain on edge about the political situation in France, with a motion of no confidence to be debated and voted on Wednesday.
If successful, it is unclear what will happen next as parliamentary elections cannot be held until next June. An option is that Macron appoints a new prime minister who could bring more stability. Still, this looks like a daunting task given the fragmentation of the current parliament.
The US economic calendar, meanwhile, is getting ready for the first key data point preceding the Nonfarm Payrolls release on Friday: the JOLTS Job Openings report for October. Markets will hear from Federal Reserve (Fed) officials as well, with three Fed speakers set to release comments after Federal Reserve Governor Christopher Waller said he is open to an interest-rate cut in December.
Daily digest market movers: All eyes on JOLTS ahead
- The US JOLTS Jobs Openings report for October is due at 15:00 GMT. Expectations are for an uptick to 7.48 million job openings against the previous 7.443 million.
- At 17:15 GMT, Federal Reserve Bank of San Francisco President Mary Daly is interviewed at Fox Business.
- Federal Reserve Governor Adriana Kugler delivers a speech about the labor market and monetary policy at an event organized by the Detroit Economic Club in Detroit near 17:35 GMT.
- Closing off near 20:45 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee delivers closing remarks at the Wildwest Agriculture Conference organized by the Chicago Fed.
- Equities are surging across the board. Both Asia and Europe are seeing their indices tick up firmly, some of them over 1%. The German Dax even reached an all-time high of 20,000 points. US equity futures are lagging behind, still looking for direction.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 72.5%. A 27.5% chance is for rates to remain unchanged. The Fed Minutes and Waller’s recent comments have helped the rate cut odds for December to move higher.
- The US 10-year benchmark rate trades at 4.21%, rather steady for a second day in a row.
Economic Indicator
JOLTS Job Openings
JOLTS Job Openings is a survey done by the US Bureau of Labor Statistics to help measure job vacancies. It collects data from employers including retailers, manufacturers and different offices each month.
Read more.Next release: Tue Dec 03, 2024 15:00
Frequency: Monthly
Consensus: 7.48M
Previous: 7.443M
Source: US Bureau of Labor Statistics
US Dollar Index Technical Analysis: Do not expect a simple surge into January
The US Dollar Index (DXY) could be in for more downside despite the increasing risk of the French government falling. An important rule of thumb in financial markets is that, when a country is facing new leadership, it is often seen as a positive in the runup towards the announcement of the new government. The reason for this is that a fresh coalition could mean more growth and a chance for relaunching plans for the economy, a scenario that would be supportive for the currency.
A stronger Euro would weigh on the DXY because the European currency is the biggest contributor to the index’s basket. Several consecutive days of Euro strength would mean more selling pressure in the DXY.
On the upside, 106.52 (April 16 high) remains as the first resistance to look at after failing to close above it on Monday and another failed attempt on early Tuesday. Should the Dollar bulls reclaim that level, 107.00 (round level) and 107.35 (October 3, 2023, high) are back on target for a retest.
Should the French government fall and a new, more stable, government formation is set to take place, the pivotal level at 105.53 (April 11 high) comes into play before heading into the 104-region. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 104.03 should catch any falling knife formation.
US Dollar Index: Daily Chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.