According to ING’s Chris Turner, the US Dollar (USD) remains supported as ongoing Middle East tensions contribute to a risk environment favoring the dollar, while US trading partners are resorting to interventions, tighter policy, or regulatory measures to defend their currencies against depreciation [1]. Turner notes that the dollar cross-currency basis swap, particularly the short-dated EUR/USD measure, has been widening slightly. He suggests that any sharper moves in this metric would likely coincide with a stronger dollar and increased pressure on risk assets [1].
This week, market attention is focused on US labor market data, including JOLTS job openings, ADP employment, and the March payroll report. The consensus for Friday's Non-Farm Payroll (NFP) release is +60,000 job growth and a 4.4% unemployment rate. Turner indicates that these figures should encourage the market to price in Federal Reserve tightening this year, especially in response to the energy shock. However, any surprise weakness in the data could negatively impact the dollar [1].
DXY is currently trading above 100, with another test of resistance at 100.25/50 expected this week [1]. Additionally, market participants are advised to monitor comments from Fed Chair Jerome Powell, who is scheduled to participate in a moderated discussion at a Harvard event today at 4:30pm CET [1].
CONCLUSION
The US Dollar Index remains buoyed by geopolitical risks and expectations of strong labor market data, with DXY trading above 100 and resistance levels likely to be tested. Market participants are closely watching upcoming US employment reports and Fed Chair Powell's remarks for further direction. Any unexpected weakness in labor data could challenge the dollar's strength.