- FOMC Meeting Minutes are the next shoe to drop later on Tuesday.
- USD fluctuates after positive Consumer Confidence figures from the Conference Board before volatility subsides.
- President-elect Trump threatens tariffs on Mexico, Canada and China, boosting the Greenback.
In Tuesday's session, the US Dollar Index (DXY) which measures the value of the Greenback against a basket of currencies, fluctuated near 107.00 following the release of key economic data. In the meantime, markets digest President-elect Donald Trump’s threat to impose tariffs on three of its largest trading partners and look for clues in the Federal Open Market Committee (FOMC) Meeting Minutes from the Novemeber meeting.
The US Dollar Index has exhibited a bullish bias, driven by strong economic data and a less dovish Federal Reserve (Fed) stance. Despite recent pullbacks due to profit-taking and geopolitical uncertainty, the uptrend remains intact. Technical indicators suggest potential consolidation with overbought conditions easing.
Daily digest market movers: US Dollar appears neutral after Consumer Confidence data, FOMC minutes
- Consumer Confidence in the United States improved in November with the Conference Board's index increasing from 109.6 to 111.7.
- The Present Situation Index rose by 4.8 points to 140.9, while the Expectations Index edged higher to 92.3.
- Regarding the FOMC minutes,Federal Reserve officials had mixed views on further rate cuts but agreed not to signal future policy direction clearly.
- They emphasized focusing on economic trends amid volatile data and acknowledged challenges in assessing the neutral interest rate's impact on activity.
- Opinions ranged from pausing rate cuts if inflation stays high to accelerating them if the economy weakens.
- After of the FOMC Minutes, the CME FedWatch Tool estimates a 59% probability of a further 25 bps rate cut by the Fed on December 18.
- The US 10-year Treasury benchmark rate declined to 4.29%, down from its recent high of 4.50%.
DXY technical outlook: Consolidating near 107.00, uptrend remains intact despite recent pullbacks
The DXY is consolidating after a strong rally, having pulled back from two-year highs. The index is currently hovering around 107.00, near the upper end of its recent trading range.
Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), are suggesting potential for a correction, but the overall bullish momentum remains strong. The DXY is likely to face resistance at 108.00 and support at 106.00-106.50. A break above 108.00 would signal a continuation of the uptrend, while a break below 106.00 would indicate a deeper correction is possible.
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.
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