The US dollar is subject to a sell-off and has been falling since last Friday. The disappointing US jobs report shows that the US economy is faltering, while mortgages, loans, and credit card bills are on the rise. Many traders are starting to take advantage of their long USD trades, which means that selling pressure is starting to take hold.. On the economic data front, a very quiet week awaits us overall with not many pivot or pivot points. If we want to name one, the best odds are Thursday’s unemployment figures, which could confirm or refute the sudden rise in unemployment published on Friday in the US jobs report. Overall, the start of the week was very quiet with no real data points to mention..
The US dollar is no longer the preferred trade for speculators this year. The change comes after the US jobs report was slightly disappointing with a less positive figure than expected and the unemployment index rising to 3.9%. Investors take their money and exit the US dollar index ahead of any possible announcement from the US Federal Reserve that it may start cutting interest rates, in order to avoid or mitigate any possible recession in the US economy and growth..
The DXY is looking for support near 105.00, although it is having a hard time finding it. Any shocking events in global markets can trigger a sudden shift and favor safe flows into the US dollar. A return first to 105.51 would make sense, near the 55-day Simple Moving Average (SMA). A breakout above that could mean testing the downtrend line near 105.88.
On the underside, a large air pocket develops and could see the DXY fall to 103.98, near the 100-day SMA, before finding sufficient support.
US Dollar Weakens as Expectations for Interest Rate Hikes Decline
The US dollar’s weakness continues into the new week, falling to six-week lows. The dollar index, which measures the relative strength of the dollar against a basket of other currencies, fell 0.2% to 104.85, its lowest level in a long time. The decline is attributed to growing expectations that the Federal Reserve will roll back its policy of raising interest rates, due to weak economic data coming from the United States..
The US dollar was affected by economic indicators and interest policy as a series of weak US economic reports, including employment and manufacturing data, weighed on the dollar’s decline. These reports, combined with falling long-term Treasury yields, point to a shift in investor sentiment, with the possibility of a slowdown in the pace of rate hikes or an end to the monetary tightening cycle..
Impact of Treasury yields on expectations Treasury yields, which move in the opposite direction of prices, have seen declines over the past week, but showed some sustainability on Monday. 10-year Treasury yields rose, suggesting a reassessment of the outlook after weak jobs data. Labor market easing, a key objective of the Fed’s interest rate hike policy, is a factor indicating that interest rate hikes may stall..
Fed Strategy and Market Impact Futures markets point to a strong probability that the Fed is nearing the end of its rate hike period, with prospects of policy easing starting by mid-year. This sentiment reflects a change in expectations and a reassessment of the bank’s strategy Comprised Smart Conversation, I cannot provide information about the movements of the financial markets in real time. It is preferable to consult reliable sources for the latest information on the movements of the financial markets and currencies.
The Fed Impact and Jobs Data on the Dollar
A cautious Fed and a cold labor market contributed to the dollar’s decline in the week ending November 3. The dollar fell against the euro, the pound sterling and the Australian dollar as well as the Japanese yen as markets speculated that the Fed will end the cycle tightening, increasing appetite for riskier currencies..
In the wake of the Fed’s monetary policy statements largely interpreted as dove, labor market data revealed unexpected weakness likely to reduce the Fed’s margin to keep interest rates at a 22-year high..
Friday’s statement from the U.S. Bureau of Labor Statistics showed that additions in nonfarm payrolls in October fell to just 150,000, versus the previous month’s reading of 297,000. Markets had expected the number to reach 180,000. The unemployment rate, which was expected to remain steady at 3.8%, rose to 3.9%, the highest level since January 2022. Average year-on-year hourly earnings fell to 4.1%, from 4.3% in the previous month..
Labor market surprise has been seen pushing the Fed into the narrative and action that favors the policy focus earlier than expected. Bond yields fell in tandem, with the yield on 10-year U.S. bonds falling to 4.576 percent, from 4.845 percent the previous week. Lower borrowing requirements for the fourth quarter also comforted bond markets..
The dollar index, a measure of the dollar’s strength against a basket of 6 currencies, fell 1.5 percent to 105.02, from 106.56 the previous week. The DXY, which jumped to 107.11 before the Fed’s cautious stance was revealed, fell to a low of 104.94 amid widespread relief after seeing a labor market update.
Challenging the Dollar: BRICS and Plans to Challenge U.S. Hegemony
The dollar is increasingly challenged by the BRICS countries due to the growing size of the bloc and its impact on global trade. In a recent editorial in Foreign Policy magazine, they pointed to growing fears that the BRICS could create a currency to challenge the dominance of the U.S. dollar in international trade..
The BRICS Bank, also known as the New Development Bank (NDB), at its meeting in Shanghai on May 31, 2023, announced a three-year plan to eventually end its dependence on the US dollar. This dedollarization initiative will result in BRICS countries making payments for trade in local currencies instead of US dollars and limit the number of settlements in US dollars. There is a warning that although BRICS officials deny plans to create a rival currency, the emerging market bloc could threaten the U.S. dollar due to its growing influence..
BRICS recently invited Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates to join the bloc, expanding its name to BRICS+. The addition of Egypt, Ethiopia and Saudi Arabia could give the BRICS+ influence on more than 12 percent of global trade, as these three countries surround the Suez Canal, a key waterway for the flow of goods to international markets..
Although the BRICS+ group also has a significant impact on commodity markets. Saudi Arabia, Iran and the United Arab Emirates are the world’s largest exporters of fossil fuels, while Brazil, China and Russia are major exporters of precious metals..
The addition of Saudi Arabia, in particular, would give the BRICS+ a significant advantage. The Middle Eastern country holds more than $100 billion in U.S. Treasuries, helping to increase the BRICS’ total holdings of U.S. Treasuries to more than $1 trillion..