- The US dollar index is 99.60 while the Taiwan dollar displays the largest intraday jump in more than 30 years.
- ISM SERVICES PMI climbed to 51.6 in April, beating estimates and reading 50.8 in March.
- The secretary of the Treasury, Bessent, said that commercial transactions could be concluded this week; Reduction of targeted deficit.
- Market activity remains thin with the holidays in China and the United Kingdom.
The US dollar index (DXY), which measures the value of the US dollar compared to a currency basket, displayed light gains on Monday while the Taiwan dollar jumped more than 5%. This decision sparked a wider rally in Asian currencies in the middle of the speculation of FX conversions by exporters. The markets remained thin with several holidays affecting liquidity.
Daily Digest Market Movers: US Dollar Flobs on Taiwan FX Move and Trade Deal Offer Hopes
- US Treasury Secretary Scott Bessent said the United States could finalize certain trade agreements this week, arousing optimism.
- Bessent expressed his confidence that 17 business partners, excluding China, presented “very good” proposals that are being studied.
- The secretary expects the economic growth of the United States to return to 3% at that time next year if the current plans are implemented.
- He mentioned the objective of reducing the projections of the Congressional Budget Office and reducing the federal deficit by around 1% per year.
- Bessent underlined strong growth in private credit as a sign that American banking regulations are excessively tight and need to adapt.
- He also noted that China has only made public offers in commercial negotiations, without any new development disclosed in private.
- The 5% thrust of the Taiwanese dollar, the largest since the early 1990s, sparked a large sale of US dollars on the Asia FX markets.
- Exporters in Taiwan would convert assets to USD in anticipation of an interior currency appreciated to guarantee commercial gains.
- Taiwan-US negotiations would have held their first official meeting on May 1, although no result was revealed.
- The activity of the market was exceptionally thin, China and the United Kingdom closed for the holidays, exacerbating FX volatility.
- The ISM services PMI increased to 51.6 in April, beating the expectations of reading and analysts in March, reporting a stable activity in the service sector in the United States.
- The employment index of the same report increased to 49.0, suggesting some improvement in the labor market within the service industry.
- The index paid prices increased to 65.1, which has feared that the underlying inflation remains sticky despite a recent relaxation in the figures of the head.
- Despite the positive data of the ISM, the US dollar index has dropped, under pressure by external FX dynamics and the decline in expectations of the Fed rate increases.
- Merchants are increasingly confident that the federal reserve will hold stable rates to a range of 4.25% to 4.50% in the next meeting.
Technical analysis
The DXY index is currently negotiated at 99.93, up 0.08% over the day, in a daily range of 99.46 to 100.05. The momentum remains neutral with a relative resistance index (RSI) of 40.84, while the divergence of mobile average convergence (MacD) flashes a purchase signal. However, the simple mobile averages of 20, 100 and 200 days – to 100.13, 105.38 and 104.39, respectively – all indicate a continuous decline. An additional drop pressure comes from EMAs of 10 days and 30 days, which are 99.77 and 101.09. The key support is located at 99.60, with resistance to 99.77, 100.08 and 100.13.
US dollar FAQ
The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a large number of other countries where it is in circulation alongside local tickets. It is the most negotiated currency in the world, representing more than 88% of all global turnover, an average of 6.6 billions of dollars of transactions per day, according to data from 2022. After the Second World War, the USD took over from the British book as a global reserve currency. For most of its history, the US dollar was supported by gold, until the Bretton Woods agreement in 1971 when the Order stallion left.
The single most important factor on the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to reach price stability (controlling inflation) and promoting full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices are increasing too quickly and inflation is greater than the 2% target of the Fed, the Fed will increase rates, which helps the USD value. When inflation falls below 2% or the unemployment rate is too high, the Fed can reduce interest rates, which weighs on the greenback.
In extreme situations, the federal reserve can also print more dollars and promulgate a quantitative relaxation (QE). QE is the process by which the Fed considerably increases the credit flow in a blocked financial system. This is a non -standard political measure used when credit has dried up because the banks will not lend themselves (by default of the fear of the counterpart). This is a last appeal when the simple drop in interest rates is unlikely to achieve the necessary result. It was Fed's weapon of choice to combat the credit crisis that occurred during the great financial crisis in 2008. It implies the Fed Print more dollars and use them to buy US state bonds mainly from financial institutions. QE usually leads to a lower US dollar.
The quantitative tightening (QT) is the opposite process by which the federal reserve ceases to buy obligations from financial institutions and does not reinvest the principal of the obligations it holds in new purchases. It is generally positive for the US dollar.
