US Dollar continues gaining as markets await further economic signals

US Dollar finding buyers as markets are pricing in fewer cuts in 2024.
Thursday’s Retail Sales will be key for market bets.
Strong US data later in the week could continue pushing the DXY higher.

The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, continues rising as markets are giving up their hopes of two cuts by the Federal Reserve (Fed) this year.

The US economy displays mixed signals, exhibiting both signs of a slowdown and resilience. The Fed has indicated that it will monitor incoming data to adjust the pace of its monetary easing policy accordingly.

Daily digest market movers: US Dollar adds more ground on quiet Monday

Fed easing expectations tempered by strong jobs and CPI data with fewer rate cuts priced in.
Fed speakers hold cautious stance on rate cuts and remain data-dependent.
Headline September CPI rose as expected last week, while core CPI was slightly higher than anticipated.
The super core rate remained unchanged at 4.3% YoY, indicating persistent price pressure.
US Retail Sales data on Thursday is projected to show continued consumer spending strength supported by favorable economic conditions.
Business inventories and industrial production reports on Thursday will provide insight into overall economic activity.

DXY technical outlook: DXY maintains bullish momentum, approaching overbought conditions

The DXY index maintains upward momentum with indicators suggesting overbought conditions near the crucial 100-day SMA. That being said, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are approaching overbought territory, signaling a potential pullback.

Supports are located at 103.00, 102.50 and 10.30, while resistances are found at 103.30, 103.50 and 104.00.

Central banks FAQs

What does a central bank do?

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%.

What does a central bank do when inflation undershoots or overshoots its projected target?

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.

Who decides on monetary policy and interest rates?

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%.

Is there a president or head of a central bank?

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.

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