20 Mar 2025

The US Dollar experienced significant appreciation throughout the day, achieving substantial gains. Traders anticipate that the Federal Reserve will validate market expectations regarding interest rate reductions in 2025. For the first time in several weeks, the US Dollar Index has surpassed the 103.00 - 104.00 range.

On Thursday, the US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six prominent currencies, surged past 104.00 following the release of weekly jobless claims data. The Federal Reserve maintained its overnight borrowing costs, while also indicating two anticipated interest rate cuts for 2025. During the Fed's meeting on Wednesday, Chairman Jerome Powell remarked that any inflationary increase driven by tariffs would be "transitory." However, he later noted the difficulty in accurately determining the extent to which inflation is influenced by tariffs compared to other factors. He also mentioned that the likelihood of a recession has increased, although it remains low, according to Bloomberg.

In the meantime, US yields are declining as investors flock to US bonds. The expectation of falling yields once the Fed initiates rate cuts has prompted a movement towards this safe-haven asset. Coupled with rising geopolitical uncertainties, particularly the improbability of a swift ceasefire in Ukraine and escalating tensions in Turkey and Gaza, it is understandable that US bonds are once again being favored as a secure investment.

Daily Market Movers Digest: Bonds in Demand

At 12:30 GMT, key economic data for Thursday was published:
- US Initial Jobless Claims increased to 223,000, up from 221,000. Meanwhile, Continuing Jobless Claims reached 1.892 million, compared to 1.859 million the previous week.
- The Philadelphia Fed Manufacturing Survey for March decreased to 12.5, surpassing the anticipated 8.5, but down from the prior reading of 18.1.

At 14:00 GMT, the month-on-month US Existing Home Sales data for February will be released, with forecasts predicting a decline to 3.95 million from 4.08 million in the previous month.

Equity markets are facing challenges, with European indices experiencing significant profit-taking. The German DAX has fallen by over 1%, while US futures are beginning to decline.

According to the CME FedWatch Tool, there is an 80.5% probability that interest rates will remain within the current range of 4.25%-4.50% during the May meeting. For June, the likelihood of a reduction in borrowing costs stands at 71.1%.

The US 10-year yield is trading around 4.19%, approaching its five-month low of 4.10% recorded on March 4.

US Dollar Index Technical Overview: Yield Compression

The US Dollar Index (DXY) is attempting to break free from a short-term descending triangle pattern. The sloped side of the triangle is expected to serve as significant resistance, while the flat base at 103.18 is anticipated to provide strong support. Typically, sellers accumulate positions along the descending trend line to breach the flat base, which could lead to further declines.

The current effort by the DXY to escape this pattern may indicate a potential reversal, although substantial resistance lies ahead at 104.00.

Should buyers successfully navigate past the technical barrier at 104.00, a substantial rally towards the 105.00 level could ensue, coinciding with the 200-day Simple Moving Average (SMA) that reinforces this area as a formidable resistance point. Once this zone is surpassed, a series of critical levels will follow.