- DXY Index declines as investors favor riskier assets following Powell's dovish speech.
- Powell hinted that the economic outlook is coming closer to the Fed’s goal.
- Markets have already priced in a September cut.
The US Dollar (USD), measured by the US Dollar Index (DXY), resumed its decline on Friday, falling from below the 101.00 level due to a shift toward riskier investments. This shift was influenced by the dovish tone of US Federal Reserve (Fed) Chairman Jerome Powell's speech at Jackson Hole.
Despite concerns about decelerating job growth, Fed officials, including Powell, maintain positive views on the US labor market. Data suggests that the US economy continues to expand above trend, suggesting that the market may be overestimating the need for rapid monetary easing.
Daily digest market movers: US Dollar softens after Powell’s speech
- Chair Powell stated that inflation has significantly declined, bringing the economy closer to the Fed's 2% target.
- Powell observed a noticeable cooling in the labor market, suggesting the economy is no longer overheated.
- Fed Chair also noted that the balance of risks has shifted, with reduced inflation risks but heightened concerns about employment.
- Chair Powell stated that future rate cuts will be determined by data, economic outlook and the balance of risks.
- Market participants have increased bets on a Fed rate cut in response to Powell's comments, with a September cut now being fully priced in.
DXY technical outlook: Bearish bias is clearer, correction possible
The technical outlook of the DXY Index remains bearish. However, buyers have been attempting to initiate an uptrend. The index remains below its 20, 100 and 200-day Simple Moving Averages (SMAs), indicating a bearish bias. The Relative Strength Index (RSI) is below 30, indicating continued and over-extended selling pressure. The Moving Average Convergence Divergence (MACD) remains in negative territory with red bars.
That being said, as indicators show oversold signals, there is potential for a correction to the upside.
Support Levels: 101.00, 100.50, 100.30
Resistance Levels: 101.50, 101.80, 102.20.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD challenges YTD tops near 1.1170 on Powell
![EUR/USD challenges YTD tops near 1.1170 on Powell](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/money-13797882_XtraSmall.jpg)
EUR/USD now picks up extra pace and revisits the 1.1170 region after Chief Powell somewhat “confirmed” a rate cut next month at his speech at Jackson Hole.
GBP/USD reaches new 2024 highs around 1.3200, Dollar plummets
![GBP/USD reaches new 2024 highs around 1.3200, Dollar plummets](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-170160529_XtraSmall.jpg)
The Greenback is now accelerating its decline and flirts with the area of 2024 low as Chair Powell signals that it is time to adjust monetary policy. GBP/USD picks up extra pace and challenges the 1.3200 region, clinching new 2024 peaks at the same time.
Gold keeps the bid bias unchanged above $2,500
![Gold keeps the bid bias unchanged above $2,500](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/stacks-of-gold-bars-19033163_XtraSmall.jpg)
The precious metal maintains its bullish stance in place on Friday, climbing above the $2,500 mark per ounce troy as Fed’s Powell signals an imminent rate cut.
Decentraland price is set for a rally after breaking above the descending trendline
![Decentraland price is set for a rally after breaking above the descending trendline](https://editorial.fxstreet.com/images/Markets/Currencies/Cryptocurrencies/Decentraland/Decentraland_XtraSmall.png)
Decentraland (MANA) price broke above the descending trendline and trades up 1.5% as of Friday at $0.291. Additionally, on-chain data support further price gains, as MANA's Exchange Flow Balance shows a negative spike, and the long-to-short ratio stays above one.
Jerome Powell expected to hint at upcoming interest-rate cut in September
![Jerome Powell expected to hint at upcoming interest-rate cut in September](https://editorial.fxstreet.com/images/Resources/Discover/Discover_18_28_XtraSmall.png)
Market participants will closely scrutinize Powell’s speech for any fresh hints on the trajectory of monetary policy, particularly about the magnitude of the Fed’s first interest-rate cut in years.
Moneta Markets review 2024: All you need to know
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.