- The US dollar fell on Friday due to profit-taking.
- Fed speakers are scheduled to comment on monetary policy on Friday, which could set the pace for the rest of the session.
- US housing statistics show a decline in building permits and housing starts.
The U.S. Dollar Index (DXY), which measures the value of the U.S. dollar against a basket of six currencies, fell on Friday as profit-taking began to take in after a strong start to the month. The dollar's decline comes ahead of a series of speeches by Fed officials on Friday that could provide further insight into the central bank's monetary policy stance. Additionally, U.S. housing data released Friday morning showed a decline in building permits and housing starts, indicating the housing market may slow.
Despite a period of slowdown, the economy is showing signs of strength, and the Federal Reserve has indicated that its approach to monetary policy will be determined based on evolving economic data. .
Daily Digest Market Trends: USD falls due to profit taking, focus on Fed speakers
- On the data side, U.S. building permits fell to 1.428 million from 1.47 million in August, and housing starts fell to 1.354 million from 1.61 million previously.
- Three Federal Reserve Board members, Rafael Bostic, Neel Kashkari, and Christopher Waller, are scheduled to speak. Investors will be looking for clues about the evolution of the Fed's monetary policy, with markets largely expecting two 25 basis point rate cuts in November and December.
- Swap futures suggest the market expects two rate cuts by the Fed by the end of 2024. The US 10-year benchmark interest rate stabilized at around 4.10%.
DXY Technical Outlook: DXY consolidates, faces resistance at 200-day SMA
The DXY index faced resistance at the 200-day SMA and entered a period of consolidation. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) have remained flat in positive territory, indicating neutral momentum. As expected, DXY could enter a period of correction after the ferocious rally that took the index from 100.30 to near 104.00.
Support is located at 103.50, 103.30, and 103.00, and resistance is located at 103.80, 104.00, and 104.30.
Central Bank Frequently Asked Questions
Central banks have the important mission of ensuring price stability in a country or region. Whenever the prices of certain goods and services change, an economy faces inflation or deflation. A continuous increase in the price of the same product indicates inflation, and a continuous decrease in the price of the same product indicates deflation. The central bank's job is to keep demand constant by adjusting policy interest rates. The mandate for the largest central banks, such as the US Federal Reserve (Fed), European Central Bank (ECB), and Bank of England (BOE), is to keep inflation close to 2%.
Central banks have one important tool at their disposal to raise or lower inflation. It is to adjust the base policy rate, commonly known as the interest rate. Upon prior communication, the central bank will issue a statement regarding the policy rate and provide additional reasons as to why it may maintain or change (lower or increase) the policy rate. Local banks will adjust their savings and lending rates accordingly, making it harder or easier for people to earn money on their savings and for businesses to take out loans and invest in their businesses. I will do it. Monetary tightening is when a central bank significantly raises interest rates. Lowering the base interest rate is called monetary easing.
Central banks are often politically independent. Members of the central bank policy committee go through a series of panels and hearings before being appointed to the policy committee seat. Each member of the board often has certain beliefs about how the central bank should control inflation and subsequent monetary policy. Doves are members of the group who are happy with inflation slightly above 2% but want a very accommodative monetary policy with low interest rates and low lending to significantly boost the economy. Members who would rather raise interest rates to reward savings and keep a constant eye on inflation are called “hawks'' and will not rest until inflation is at or slightly below 2%.
There is usually a chairperson or president who leads each meeting, and consensus must be built between hawks and doves, with votes split to avoid a 50-50 tie on the pros and cons of the current topic. have the final say in the matter. Policies need to be adjusted. The chair often gives a speech that can be viewed live, conveying the current financial stance and outlook. Central banks seek to promote monetary policy without causing wild fluctuations in interest rates, stocks, and currencies. All members of the central bank are expected to signal their stance on markets ahead of the policy meeting event. Starting several days before the policy meeting, members are prohibited from speaking publicly until new policies are communicated. This is called the blackout period.
