- The DXY fell, dropping to 100.60.
- The Conference Board's September consumer confidence index came in below expectations.
- Fed chairs are currently battling dovish market expectations.
The US Dollar Index (DXY), which measures the greenback's value against a basket of six currencies, recorded a slight decline on Tuesday after the release of The Conference Board's consumer confidence data, while Federal Reserve officials appeared to be trying to push back against the market's aggressive dovish outlook.
The US economy is showing mixed signals, showing signs of both a slowdown and a continuing recovery. Economic activity appears to be easing, although some sectors remain robust. The Fed has indicated that the trajectory of monetary policy will be determined by changing economic data, suggesting that the pace of interest rate adjustments will be determined by incoming information.
Daily Digest Market Trends: US Dollar Falls Following Disappointing CB Consumer Confidence Results, Fed Speakout
- US consumer confidence unexpectedly fell sharply in September to a weaker-than-expected 98.7.
- The market is expecting excessive easing from the Fed, pricing in a 75 basis point cut by the end of the year and a 175-200 basis point cut over the next 12 months.
- Some Fed officials, including Minneapolis Federal Reserve Bank President Neel Kashkari and Michelle Bowman, disagree with the market's dovish expectations.
- Bowman opposed the recent 50 basis point cut, preferring a 25 basis point cut and warning that a bigger cut could hinder efforts to combat inflation.
- She highlighted ongoing inflation risks, including supply chain disruptions and fiscal policy, and remained cautious about the strength of the labor market.
- Other Fed officials, including Atlanta Federal Reserve Bank President Raphael Bostic and Chicago Federal Reserve Bank President Austen Goolsbee, have also expressed concerns about the labor market and supported faster rate cuts.
- The market remains strongly betting on 75bps of easing this year.
- On the positive side for the US dollar, divergences in global growth are favourable to the greenback, while the eurozone, Australia and China are showing signs of weakness.
- The 10-year U.S. Treasury yield has fallen from its September high and is currently trading at 3.75%.
DXY Technical Outlook: DXY Maintains Bearish Momentum, Bulls Struggle
Technical analysis of the DXY index reveals a bearish trend with the Relative Strength Index (RSI) at around 40 and the Moving Average Convergence Divergence (MACD) showing a decreasing green bar. The technical outlook remains decidedly bearish as the index is below the 20, 100 and 200-day Simple Moving Averages (SMA). A breakout above the 20-day SMA could improve the outlook somewhat.
Support levels are at 100.50, 100.30 and 100.00 while resistance levels are at 101.00, 101.30 and 101.60.
Central Bank FAQs
Central banks have an important mission to ensure price stability in a country or region. When the prices of certain goods and services fluctuate, the economy faces inflation or deflation. When the price of the same goods constantly rises, it means inflation, and when the price of the same goods constantly falls, it means deflation. It is the task of the central bank to fine-tune the policy interest rate to maintain demand. The mission of the largest central banks such as the US Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) is to keep inflation close to 2%.
Central banks have one key tool at their disposal to raise or lower the inflation rate: tweaking the benchmark interest rate, commonly known as the interest rate. With advance notice, the central bank issues a statement on the benchmark interest rate and provides additional reasons for why it will keep it constant or change it (lower or raise it). Local banks adjust their savings and lending rates accordingly. As a result, it becomes harder or easier for people to earn on their savings and for businesses to take out loans and invest in their businesses. When the central bank significantly raises interest rates, it is called monetary tightening. When the central bank lowers the benchmark interest rate, it is called monetary easing.
Central banks are often politically independent. Members of a central bank's policy committee are appointed to their seats through a series of committees and public hearings. Each committee member tends to have certain beliefs about how the central bank should control inflation and the associated monetary policy. Those who would boost the economy substantially with a very loose monetary policy of low interest rates and cheap lending, and would be happy with inflation just above 2%, are called “doves.” Those who favor high interest rates to reward savings and who are constantly vigilant against inflation are called “hawks” and will not rest until inflation is at or below 2%.
There is usually a chair or governor who leads each meeting, who must reach a consensus between hawks and doves, and who has the final say if votes are split to avoid a 50-50 tie on whether current policy should be adjusted. The chair gives a speech that communicates the current monetary policy stance and outlook, which is often available to watch live. Central banks try to advance monetary policy without causing wild fluctuations in interest rates, stocks, and currencies. All members of the central bank communicate their stance to the market ahead of the policy meeting event. Members are prohibited from speaking publicly from a few days before the policy meeting until the new policy is communicated. This is called a blackout period.
