- The US dollar remains stuck in the backfoot and cannot recover against its main ally.
- ECB Lagarde supports the concern by saying that the ECB must be vigilant and prompt to act in any circumstances.
- The US dollar index has already lost more than 3% of its previous value this week.
The US Dollar Index (DXY), which tracks the performance of the US dollar (USD) against six major currencies, fell below the 104.00 marker in a week filled with disruption this Thursday. In addition to warning signs from the European Central Bank (ECB), several banks and traders have reported that large clients are repatriating foreign investments derived from US dollars to their domestic currencies. This may mean that such amounts will not return soon, FT reports.
Repatriation has regained fears of this week's recession as it worries the market over the possibility that Trump's tariffs could affect domestic inflation after weakening US economic data. Clearly, the approach of US (US) President Donald Trump is beginning to have some negative fallout.
Meanwhile, the focus will shift to Europe, where the European conference is taking place this Thursday. EU leaders discuss the spending bill on defense after making clear that the US will no longer play an active role in NATO. US support for Ukraine has also been rewind to date. The European Central Bank (ECB) has reduced its 25 basis points as expected, but the language of its statement has been changed to a little more Hawkish.
Daily Digest Market Mover: Lagarde keeps DXY negative
- The job openings for US Challenger were scheduled for February. Compared to 49,795 last month, the number of highly negative cases that have skyrocketed is from over 100% to 172,017 heads.
- The European Central Bank (ECB) has announced its monetary policy decision. As expected, interest rates have been reduced by 25 basis points (BPS) from 2.75% to 2.50% at the benchmark deposit rate. The ECB revised its inflation outlook for 2025 to 2.3% against the initial 2.1%.
- Weekly US unemployment claims and January US trade balance data have been released.
- The initial bill for the week ending February 28th was 221,000, stronger than the expected 235,000 and lower than the 242,000 print last week. Continued billing for the week ending February 21st was up at 1,897 million.
- The US goods trade balance in January saw a wide deficit of $156.8 billion, with a major escape in the $127.4 billion deficit, predicted from the $153 billion deficit in December.
- ECB Chairman Christine Lagarde was still writing at the time. ECB's Lagarde has issued a considerable number of warnings about current changes in the trading regime, saying the ECB should be vigilant at these very uncertain and uncertain times. ECB Kaliman has been reiterating more data-dependent than ever before, even more so than in the Covid and post-Covid eras.
- Stocks are falling even further as ECB's Lagarde statement does not reveal a positive outlook for the market in the future.
- The CME FedWatch tool has a 79.6% chance of interest reductions at its June meeting, and there is only a 20.4% chance of maintaining interest rates of 4.25% to 4.50% in June in its current range.
- The US 10-year yield is trading around 4.28% from the nearly five months of 4.10% lowest printed on Tuesday.
US Dollar Index Technical Analysis: Just Flavor
The US Dollar Index (DXY) is bleeding this week, and I'm curious as to why it was leaking. Several traders report that many European pension funds, hedge funds, and other large institutions are repatriating assets built in US dollars to their domestic currency. That means that while these recession horrors are still happening, a significant volume of the long-standingly parked under the US dollar has been moved and it doesn't seem to come back soon.
The advantage is that the first upside target is to recover the 200-day simple moving average (SMA) at 105.04. Once that level is restored, there are several short-term resistances lined up, identifying 105.53 and 105.89 as two heavy, important levels before they exceed 106.00.
On the downside, 104.00 has seen sales pressure but is trying to hold it for now. Further down, 103.00 could be considered a bear target in case the US rolls off again. This is not even considered 101.90 if the market further surrenders to long-term US dollar holdings.
US Dollar Index: Daily Chart
Central Bank FAQ
Central banks have an important task of ensuring that there is price stability in their countries and regions. When prices of certain goods or services fluctuate, the economy is constantly facing inflation or deflation. A certain price for the same item means inflation, while a certain price for the same item means deflation. The challenge for central banks is to align demand by tweaking policy rates. For the largest central banks, such as the US Federal Reserve (Fed), European Central Bank (ECB), or the Bank of England (BOE), the mission is to bring inflation closer to 2%.
Central banks have one important tool at their disposal to make inflation higher or lower. This is to fine-tune the benchmark policy rate, commonly known as interest rates. The moment you communicate in advance, the central bank will issue a statement at its policy rate and provide additional inference as to why it remains or is changing (cutting or hiking). Local banks adjust their savings and lending rates accordingly. This makes it difficult or easier for people to make money from savings, or companies to get loans and invest in their businesses. When a central bank hikes a big interest rate, this is called a financial tightening. If you are reducing your benchmark rate, it is called monetary easing.
Central banks are often politically independent. Members of the central bank's policy committee have passed a series of panels and hearings before being appointed to the policy committee. Each member of that committee is often given a specific conviction on how central banks should control inflation and subsequent monetary policy. Members who want very loose monetary policy with low prices and cheap lending are called “pipes” while satisfyingly boosting the economy to see inflation just above 2%. Rather, members who want to see high fees to reward their savings and always want to be lit by inflation are called “hawks” and do not take a break until inflation falls below 2%.
Usually there is a chairman or president who has the final say when it comes to the poll split to avoid 50-50 tie that leads each meeting and creates a consensus between the Hawks or Doves and whether the current policy should be adjusted. The chairman will give a speech that can be continued live, with current financial stance and outlook being conveyed. Central banks seek to promote monetary policy without causing violent fluctuations in interest rates, stocks or their currency. All members of the central bank will guide their stance towards the market ahead of policy meeting events. Members are prohibited from speaking publicly a few days before the policy meeting takes place until the new policy is communicated. This is called the blackout period.
