The US Dollar (USD) is taking a firm step back against the Euro by 0.60% and the Canadian Dollar by 0.50% for this Thursday as the ECB outperforms the hawkish pause from the Fed. China’s central bank People Bank of China (PBOC) has cut rates on 1-year loan rates from 2.75% to 2.65%, making the Chinese Yuan outperform the US Dollar by a touch. The main point from last night’s Fed rate decision was that Fed chairman Jerome Powell delivered an overall hawkish speech and gave the Fed a free pass to hike whenever they see fit in the remaining five meetings for this year. .
With the Fed meeting out of the way now, traders did not have much time to rethink their strategy as a big slew of data is just around the corner again this Thursday together with an even more hawkish European Central Bank (ECB) and its chairman Christine Lagarde. US Retail sales came in very mixed with downward revisions of the previous numbers, though US Retail Sales ex Auto and Gas came in higher at 0.4% against 0.2% expected. On the price pressure front, the Import Price Index printed notable lower prices in every segment, pointing to price pressure further abating in the US. .
The US Dollar is contracting against a few currencies and is letting lose of its gains in most Asian currencies. Where in early trading today the US Dollar was a perfect example of buy the rumour, sell the fact, it now has turned to pre-Fed levels. Support at 102.57 is still due to show its force. But it looks clear that the 100-day SImple Moving Average (SMA) at 103.05 has lost its magic.
On the upside, 105.37 (200-day Simple Moving Average) still acts as a long-term price target to hit. The next upside key level for the US Dollar Index is at 105.00 (psychological, static level), which acts as an intermediary element to cross the open space.
On the downside, the DXY needs to be monitored at the 55-day SMA at 102.57 in order to assess any further downturn or upturn. In the past it has been acting well as support and on Wednesday the descent did not quite make it to that level for a test.
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.
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EUR/USD extended its rally and reached its highest level in a month above 1.0950. The ECB hiked key rates by 25 bps as expected, and President Lagarde paved the way for one more rate increase in July. The US Dollar tumbled amid increased risk appetite and a decline in Treasury yields.
GBP/USD gained bullish momentum and reached its strongest level since April 2022 at 1.2785. The US Dollar remains under strong selling pressure after US economic data and improving market sentiment. Over the last three days, the pair has gained over 2% and nearly 300 pips.
Gold price dribbles near $1,958-59 during early Friday after a volatile day that initially refreshed a multi-day low before bouncing off $1,924, as well as posted snapping the four-day losing streak. The XAU/USD previously dropped to the three-month low.
Ethereum price, along with the leader of the cryptocurrencies, Bitcoin, noted a pullback despite the US Federal Reserve (Fed) keeping the interest rates steady this month.
The Bank of Japan (BoJ) will announce its monetary policy decision on Friday, June 16. The policy decision will be announced tentatively at around 03:00 GMT; later Governor Kazuo Ueda will hold a press conference.
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