- US dollar softens after weaker US CPI revisions
- Traders see takeover risk when Spoos captures the 5,000 mark.
- The US Dollar Index fails to close above the 100-day SMA and could fall back below 104.
The US dollar (USD) is lower this Friday after the opening bell in the US with some Risk On is creeping up after the S&P 500 hit 5,000 shortly after the opening session. The city is making headlines this Friday with former US President Donald Trump’s landslide victories in both Nevada and the Virgin Islands giving him a comfortable early lead in the primaries. The second big topic is the former Fox interview news reporter Tucker Carlson with Russian President Vladimir Putin, where it is clear that Putin is not interested in attacking the West, only Ukraine.
On the economic front, it’s a blank slate with no economic data to report beyond the publication of a consumer review Price index (CPI) weights and results. Once a year, in January, the Bureau of Labor Statistics (BLS) revises and recalculates the seasonally adjusted factors that made the recent December inflation numbers even lower than expected. One of the spokesmen for the US Federal Reserve System is scheduled to appear after the final European bell. Lorie Logan of Dallas Fed he will speak around 18:30 GMT.
Daily overview of market movements: A softer touch
- In the final result of German inflation for January, annual headline inflation closed at 2.9%.
- Martin Kazaks of the Council of the European Central Bank said that there will be a rate cut for the ECB this year. It’s just a matter of when the data confirms the right time.
- Senate moves ahead with aid for Ukraine and Israel, separating US border deal from bill.
- The Bureau of Labor Statistics said headline inflation was actually at 0.23%, not 0.3%. Core was seen at 0.28% instead of 0.31% for its monthly performance. Adjusted CPI for 4Q is at 3.3%.
- Equity markets are in the green with the US opening bell behind them. The S&P 500 finally broke above 5,000.
- CME Group’s FedWatch Tool is now looking at the March 20 meeting. Expectations for a pause are 84.5%, while 15.5% rate cuts.
- Benchmark 10-year US Treasuries are trading near 4.18%, although the jump in the yield from a lower 4.06% earlier this week is not reflected in the US dollar.
US Dollar Index Technical Analysis: A Little Too Excited
The US Dollar Index (DXY) is showing fatigue after the cost of the final divergence from the 200-day simple moving average (SMA) near 103.61. Ideally, a close above the 100-day SMA at 104.27 would signal the dollar for further gains into next week, although US dollar bulls do not support this plan. Instead, there was a week of false breaks and it could mean that DXY is now falling back to the 200-day SMA for support.
Should be American dollar The index has moved higher again, first look for a test of Monday’s high near 104.60. This level needs to be broken and is more important than the 100-day simple moving average at 104.28. After breaking this Monday high, the way is open for a jump to 105.00 with 105.12 as key levels to watch out for.
The 100-day SMA (104.28) is clearly an unreliable friend in a rally at the moment. A false break on Monday and no support provided on Tuesday from the moving average opens the door for a push lower. The first ideal candidate for support is the 200-day SMA near 103.61. Should it pull back, look for support from the 55-day SMA near 103.02 itself.
Frequently asked questions about central banks
Central banks have a key mandate that ensures price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant increase in the prices of the same goods means inflation, a constant decrease in the prices of the same goods means deflation. The central bank’s job is to keep demand in line with the adjustment of its base rate. For the largest central banks, such as the US central bank (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
The central bank has one important tool at its disposal to get inflation higher or lower, and that is by adjusting its reference base rate, commonly known as the interest rate. At pre-announced times, the central bank will issue a statement with its monetary policy rate and provide additional justification for either keeping it or changing (lowering or increasing) it. Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for people to cash in on their savings or for businesses to borrow and invest in their businesses. When a central bank raises interest rates substantially, it is called monetary tightening. When it lowers its benchmark rate, it is called monetary easing.
The central bank is often politically independent. Members of the central bank’s policy board go through a series of panels and hearings before being appointed to a policy board seat. Each member of this board often has certain beliefs about how the central bank should control inflation and subsequent monetary policy. Members who want a very loose monetary policy with low rates and cheap borrowing to support the economy substantially, while settling for inflation slightly above 2%, are called “doves”. Members who prefer to see higher rates as a reward for saving and want to keep an eye on inflation are called “hawks” and won’t rest until inflation is at or just below 2%.
There is usually a chairman or president who leads each meeting, needs to build consensus among the hawks or doves, and has the final say when votes are split to avoid a 50-50 tie on whether policy should be adjusted. The Chairman will deliver speeches, which can often be watched live, communicating the current monetary situation and outlook. The central bank will try to enforce its monetary policy without causing sharp swings in rates, stocks or its currency. All members of the central bank will direct their stance on the markets ahead of the policy meeting. A few days before the policy meeting, until the new policy is communicated, members are prohibited from speaking publicly. This is called the blackout period.