US Dollar Talking Points
The recent rally in the US Dollar appears to be undeterred by the Federal Reserve interest rate decision as the DXY index pushes above a critical technical resistance barrier, and fresh data prints coming out of the US economy may keep the Greenback afloat as employment is expected to increase for the third consecutive month.
Fundamental Forecast for US Dollar: Bullish
The US Dollar Index (DXY) trades above the 200-Day SMA (92.56) for the first time since May 2020 as longer-dated US Treasury yields hold above pre-pandemic levels, and the update to the Non-Farm Payrolls (NFP) report may spark a bullish reaction in the Greenback as the US economy is projected to add 500K jobs in March.
At the same time, the Unemployment Rate is expected to narrow to 6.1% from 6.2%, and the ongoing improvement in the labor market may encourage the Federal Reserve to further upgrade its economic outlook even as Chairman Jerome Powell endorses a dovish forward guidance in front of US lawmakers.
Vice-Chair Richard Clarida offered a similar tone while speaking at the Institute of International Finance (IIF) Washington Policy Summit as the official emphasized that “employment is still 9.5 million below its pre-pandemic level,” with the permanent voting member on the Federal Open Market Committee (FOMC) reiterating that “we will continue to increase our holdings of Treasury securities by at least $80 billion per month and our holdings of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward our maximum-employment and price-stability goals.”
The slew of dovish remarks suggest the Fed is in no rush to scale back its emergency measures as Chicago Fed President Charles Evans, a 2021 voting member on the FOMC, insists that “it might be 2024 before weactually raise ourinterest-rate target” while speaking at a virtual event held by the Women in Housing and Finance organization, but the rise in longer-dated US Treasury yields may keep the Dollar afloat the update to the Summary of Economic Projections (SEP) highlights an improved outlook for the US economy.
With that said, the US Dollar may continue to appreciate ahead of the NFP report as the DXY index pushes above a critical technical resistance barrier, and another uptick in employment may generate a bullish reaction in the Greenback as it puts pressure on the FOMC to scale back the dovish forward guidance for monetary policy.
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— Written by David Song, Currency Strategist
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