- The US Dollar prints small gains against most major G20 peers.
- Traders are getting ready for the weekly US Jobless Claims.
- The US Dollar Index pops back above 104 in a very calm market for now.
The US Dollar (USD) is back in the green after a stalemate session on Wednesday. Initially hopes of a ceasefire breakthrough between Israel and Hamas made the safety-linked US Dollar retreat a touch. After Israel’s Prime Minister Benjamin Netanyahu came out late Wednesday evening with a statement rejecting the plan, however, the USD gained a bid. According to Netanyahu the complete destruction of Hamas would only take a few more months anyway.
On the economic front, traders are getting ready for the weekly US Jobless Claims. The Wholesale Inventories are due as well later this Thursday, though expect not much movement in the Greenback on the back of that.
Traders looking for a longer term trade or strategy, or analysts that want to better assess the longer term inflation risks might consider taking a look at the US crop report: The United States Department of Agriculture (USDA) releases every month the World Agricultural Supply and Demand Estimates report (WASDE) where insights are given on supply, demand, bad harvests on all sorts of crops, and thus on possible weak spots that might attribute to the food inflation basket.
- This Thursday Nevada and the Virgin Islands are up for Republican Caucus elections. Another landslide victory for former US President Donald Trump would almost guarantee him the nomination as Republican Presidential Candidate for the November elections.
- At 13:30 GMT the weekly US Jobless Claims are due to be released. Expectations are for a decline in the numbers after the strong upbeat US Jobs report from past Friday.
- Initial Jobless Claims are expected to head from 224,000 to 220,000.
- Continuing Jobless Claims are seen heading from 1,898 million to 1,878 million.
- Wholesale Inventories for December are expected to stay steady near 0.4%.
- At 16:30, a 4-week Note will be auctioned by the US Treasury Department.
- Richmond’s Federal Reserve President Thomas Barkin is due to speak at 17:05. A 30-year bond auction will take place around 18:00.
- Around 17:00, the United States Department of Agriculture (USDA) will release its monthly World Agricultural Supply and Demand Estimates report (WASDE).
- Equity markets are mixed this Thursday. Japanese indices have closed off this Thursday in the green with the Nikkeai up over 2%. Quite a different picture in China where the Hang Seng is down 1.3%. European equities are looking for direction while US equity futures are rather flat.
- The CME Group’s FedWatch Tool is now looking at the March 20th meeting. Expectations for a pause are 81.5%, while 18.5% for a rate cut.
- The benchmark 10-year US Treasury Note trades near 4.12%,and trades in the middle of this week’s range.
The US Dollar Index (DXY) is slowly but surely advancing higher again with markets digesting the failed ceasefire plan that was put on the table by Hamas. The harsh rhetoric from Prime Minister Benjamin Netanyahu could mean some lingering US Dollar strength in the coming weeks. Meanwhile markets will be looking for next Republican state Caucus elections, which could lock in Trump as a favorite for November.
Should the US Dollar Index move higher again, first look for a test at the peak of Monday, near 104.60. That level needs to be broken and is more important than the 100-day SImple Moving Average snap at 104.30. Once broken above that Monday high, the road is open for a jump to 105.00 with 105.12 as key levels to keep an eye on.
The 100-day SMA (104.29) is clearly the unreliable boyfriend in the rally at the moment. A false break on Monday and no support provided on Tuesday from the moving average opens the door for a bit of a squeeze lower. The first ideal candidate for support is the 200-day SMA near 103.60. Should that give way, look for support from the 55-day SMA near 103.00 itself.
US Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
