The US Dollar Index (DXY) was trading up over 47 pips as the dollar rallied against most of its peers, extending an uptrend that has been in place since mid-July 2023. The index has rallied higher today despite yesterday’s downgrade of the US credit rating to AA+ from AAA by Fitch ratings.
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The rating downgrade saw the DXY give up some of yesterday’s gains, but the move lower did not last long enough to print a negative daily candle. The US Treasury Secretary disagreed with the decision, saying it was arbitrary and based on outdated data. However, some cracks in the US economy give merit to the downgrade.
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For example, debt delinquency rates in the US have been rising for the past six quarters indicating that consumers are having trouble meeting their debt obligations. The US credit card debt is about to cross the $1 trillion mark, indicating that consumers borrow more to meet the high cost of living.
However, investors were more concerned with today’s news releases relating to the US dollar as the ADP non-farm employment change data came in at 324,000 new jobs beating analysts' estimates of 191,000 new jobs. The upbeat US jobs data lifted the Dollar Index to new highs.
There were very few releases on today’s economic calendar as investors look forward to Friday’s non-farm payroll data, which tends to impact the DXY significantly. Investors are optimistic about the jobs data given today’s ADP report.
Furthermore, a robust jobs market could allow the US Federal Reserve to raise interest rates further, although that was not on the cards at the last meeting. Many investors and analysts could start betting that the Fed will keep hiking rates based on job data.
The Fitch rating downgrade fueled the Dollar Index’s rise despite the anticipated fiscal deterioration over the next three years and the growing general government debt burden. The downgrade caused market participants to avoid risk-sensitive assets, allowing the USD to find demand as a safe-haven asset.
Nela Richardson, the chief economist at ADP, said: “The economy is doing better than expected, and a healthy labor market continues to support household spending,”
The US Dollar Index (DXY) price chart.
The US Dollar Index (DXY) was trading up 47.5 pips (0.47%) as the US dollar rallied against its peers.
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