US Dollar Triumphs as Seismic Shift in Markets Suffers Third Day of Brutal Revaluation

The US dollar posted gains for this Friday and this week, trading at its highest level since early November. Traders are pushing the greenback higher as markets divide currency markets into two camps: currencies are weaker in the long term and stronger in the long term. The US dollar index is recovering towards 106.00.

The US dollar (USD) is being pushed higher largely thanks to geopolitical tensions, a lack of risk in US equity markets and the policy rate differential which sees US rates higher for longer compared to to their competitors. Investors do not appear to be taking profits despite the recent rally, which could mean more US dollar strength is on the cards for next week. The main driver behind the move is the collapse of European bonds, with yields falling compared to the very stable US ones, as the rate gap between the two sides of the Atlantic widens.

On the economic data front, traders are starting to applaud the good data under the American exceptional label. Stocks could also see a recovery despite rising interest rates, lending credence to the idea that there will be no economic crash and that the current level of high rates is even good for the economy. prevent overheating. The numbers from the University of Michigan this afternoon may further support the above narrative.

Market Players' Daily Roundup: ECB Delivers Euro Knockout Several members of the European Central Bank came out this morning with a broadly similar message that cuts must happen now and June is a guarantee. This has already triggered more than 0.70% losses for the euro against the greenback. The euro represents almost 57% of the weighting of the US Dollar Index (DXY). Import and export price index data for March: The monthly export price index increased from 0.7% to 0.3%. The monthly import price index jumped slightly, from 0.3% to 0.4%. Preliminary figures from the University of Michigan for April will be released at 14:00 GMT: Consumer confidence is expected to fall slightly to 79 from 79.4. Inflation expectations were previously at 2.8%, with a slight rise expected after recent Consumer Price Index (CPI) figures. Three presidents of the US Federal Reserve will take the stage later on Friday: at 5:00 p.m. GMT, Federal Reserve Bank of Kansas City President Jeffrey Schmid will deliver a keynote address. Around 6:30 p.m. GMT, President of the Federal Reserve Bank of Atlanta, Raphael Bostic, delivers a speech on the housing crisis. Finally, at 7:30 p.m. GMT, Federal Reserve Bank of San Francisco President Mary Daly will participate in a panel discussion at a Fintech conference. A brutal day for stocks, with European shares giving up their 1% gains early, falling into the red, while US stocks fell 1%. The CME FedWatch tool estimates a 93.4% probability that the policy rate will not change for May 1. For now, the odds are highest for September 18 with a 44.7% chance of a first rate cut, compared to 28.5% for an unchanged position. The benchmark 10-year US Treasury bond is trading around 4.51%, falling slightly after reaching 4.59% overnight on Thursday. Technical analysis of the US dollar index: if this doesn't wake up traders…

The performance of the US Dollar Index (DXY) shows that markets are still shaking after this week's shocks. Strong price pressures in the United States for a third straight month are quickly moving the Fed's rate cut bets toward the end of the year, breaking the governance momentum of this year so far.

Now it is becoming clear that whichever central bank – and therefore currency – starts cutting its benchmark rate will be severely punished by the markets. On the contrary, central banks that keep rates stable for longer will likely be rewarded with further appreciation of their currencies, provided their economies are robust despite the current high rate regimes. The pack is split in two: while the weaker economies are expected to expose their currencies, the stronger ones are expected to continue to recover.

On the positive side, the first level of the DXY is the November 10 high at 106.01, just above the 106.00 figure. Higher and above the 107.00 round level, the DXY index may encounter resistance at 107.35, the October 3 high.

On the downside, new support levels are also to be expected, with the first significant level located at the 105.00 level. Lower, 104.60 should also act as support, ahead of the region with the 55-day and 200-day simple moving averages (SMA) at 103.97 and 103.84, respectively.

Banking crisis FAQ

The March 2023 banking crisis occurred when three US banks with heavy exposure to the technology and crypto sector suffered a surge in withdrawals that revealed serious weaknesses in their balance sheets, leading to their insolvency. The most high-profile bank was California-based Silicon Valley Bank (SVB), which saw a surge in withdrawal requests due to a combination of customers fearing fallout from the FTX debacle and significantly higher yields offered elsewhere.

In order to carry out the buybacks, Silicon Valley Bank had to sell its holdings consisting mainly of US Treasury bonds. However, due to rising interest rates caused by the Federal Reserve's rapid tightening measures, the value of Treasury bonds has fallen significantly. News that SVB had suffered a $1.8 billion loss from the sale of its bonds sparked a panic and precipitated a large-scale run on the bank that ended with it having to be taken over by the bank. Federal Deposit Insurance Corporation (FDIC). The crisis has spread to San Francisco. -The First Republic, based in Francisco, which was eventually saved by a coordinated effort by a group of major American banks. On March 19, after several years of poor performance, Credit Suisse in Switzerland was purchased by UBS.

The banking crisis was negative for the United States dollar (USD) because it changed expectations regarding the future development of interest rates. Before the crisis, investors expected the Federal Reserve (Fed) to continue raising interest rates to combat persistently high inflation. However, when it became clear how much strain this was putting on the banking sector by devaluing bank holdings of US Treasuries, it was widely expected that the Fed would pause or even reverse its policy course. Since rising interest rates are positive for the US dollar, the US dollar fell as it ruled out the possibility of a policy change.

The banking crisis was a bullish event for gold. First, it benefited from demand due to its safe-haven status. Second, it has led investors to expect that the Federal Reserve (Fed) will suspend its aggressive rate-raising policy, out of fear of the impact on the financial stability of the banking system – lower expectations for interest rates have reduced the opportunity cost of holding gold. Third, gold, priced in US dollars (XAU/USD), has increased in value due to the weakening of the US dollar.

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