- The DXY stands at 104.10 on Monday with slight gains.
- The Fed's dovish stance remains despite the slim chance of a rate cut in March.
- Tuesday's January CPI numbers will determine the Fed's tapering schedule and USD dynamics.
He US dollar (USD) remains firmly positioned at 104.10, demonstrating stability ahead of the release of key US data due this week. Financial markets await with interest the economic reports on the Consumer Price Index (CPI), the Producer Price Index (PPI) and retail sales for January, which could further strengthen the position of the Dollar. At the same time, anticipation is focused on the upcoming inflation reports, which are expected to shed light on the behavior of the economy and the future stance of the Federal Reserve (Fed).
In early February, the US dollar saw notable gains following comments from Federal Reserve Chairman Jerome Powell indicating that an interest rate cut in March was unlikely. He stressed the need for more evidence of falling inflation before the Fed could consider cutting rates, making upcoming data crucial. Tuesday's release of the US Consumer Price Index (CPI) for January is expected to significantly influence the near-term direction of the US dollar.
Daily Market Summary: US Dollar Steady Ahead of Key Economic Data, Yields Steady
- Core CPI for January is estimated to have increased 3.7% year-on-year, while headline CPI slowed to 2.9% year-on-year.
- US Treasury yields decline slightly. The 2-year yield stands at 4.47%, the 5-year yield at 4.12%, and the 10-year yield at 4.17%.
- CME's FedWatch tool indicates a 20% chance of a rate cut for the March meeting, but some changes could occur should the January US CPI come in lower than expected. These probabilities are around 50% for May.
Technical Analysis: DXY bulls hold firm, unable to conquer 100-day SMA
The Relative Strength Index (RSI) remains stable within positive territory, indicating that bullish strength retains some grip on the index's dynamics despite recent movements. The Moving Average Convergence Divergence (MACD) also offers green flat bars, suggesting a positive trend in line with the bullish stance.
In the simple moving averages (SMA) realm, the DXY appears to be hovering above the 20-day SMA and likewise above the 200-day SMA, indicating a strong bullish outlook on the horizon. longer term. However, it is trading just below the 100-day SMA, suggesting some short- to medium-term selling pressure.
In view of these indicators, it is evident that the buying impulse is more present than the selling pressure. While the bearish moves have caused some disruption, the resilient underlying current of bullish energy reflected in the RSI, MACD and SMAs denotes a bullish outlook on the overall trend.
Banxico FAQ
What is Banxico?
The Bank of Mexico, also known as Banxico, is the country's central bank. Its mission is to preserve the value of Mexico's currency, the Mexican peso (MXN), and set monetary policy. To do this, its main objective is to maintain low and stable inflation within target levels (at or near its 3% target, the midpoint of a tolerance band between 2% and 4%).
How does the monetary policy of the Bank of Mexico influence the Mexican peso?
Banxico's main tool to guide monetary policy is the setting of interest rates. When inflation is above the target, the bank will try to control it by raising rates, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN), as they generate higher returns, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the MXN. The rate differential with the Dollar, or how Banxico is expected to set interest rates compared to the United States Federal Reserve (Fed), is a key factor.
How often does the Bank of Mexico meet during the year?
Banxico meets eight times a year and its monetary policy is greatly influenced by the decisions of the US Federal Reserve (Fed). Therefore, the central bank's decision-making committee typically meets a week after the Federal Reserve. By doing so, Banxico reacts and sometimes anticipates the monetary policy measures set by the Federal Reserve. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico did so first in an attempt to decrease the chances of a substantial depreciation of the Mexican Peso (MXN) and avoid capital outflows that could destabilize to the country.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
