- The Dollar is trading higher against the main G20 peers.
- Hopes and bets for a quick return to normality in rate policy are reduced, since the Fed does not foresee increases soon.
- The Dollar Index flirts with a jump to 104.00.
He US dollar (USD) is coping with selling pressure in recent days and weeks, before heading into the Thanksgiving holiday on Thursday. The release of the Fed’s Minutes from its recent rate decision revealed that the entire board is agree that cuts are not in the plan for the next meetings. This pours cold water on markets’ bets that cuts could be very close, even in December.
The calendar could help the Dollar Index (DXY) rise further. Along with durable goods and jobless claims data, consumer inflation expectations data from the University of Michigan could confirm that the Fed is right to not ease up too quickly. Although this is the final reading, any upward revision will be welcomed by the dollar later on Wednesday.
Daily summary: Subsidy applications surprise positively
A very tight schedule this Wednesday before the Thanksgiving holidays on Thursday.
- Data release begins at 12:00 GMT, with last week’s Mortgage Bankers Association (MBA) mortgage applications. The previous figure was 2.8% and now it is 3%.
- At 13:30 GMT numerous data were published.
- The next focus of attention will be at 15:00 GMT with figures from the University of Michigan.
- The Consumer Sentiment Index is expected to rise from 60.4 to 60.5.
- 5-year Inflation expectations are expected to remain stable at 3.2%.
- Please note that these are the final readings for the month of November.
- Shares are trading modestly higher as stock markets saw no help from Nvidia’s disappointing earnings. Sam Altman’s saga with Microsoft and AI doesn’t help either. Asia and Europe are seeing slightly positive numbers, while US futures are flat ahead of the market open.
- CME Group’s FedWatch tool shows that markets are pricing in a 94.8% chance that the Federal Reserve will keep interest rates unchanged at its December meeting. 5.2% of respondents believe that a rate hike could occur.
- The 10-year US Treasury yield is trading at 4.38%, near new weekly lows.
Technical Analysis of the Dollar Index: Tug of War
The US currency is breaking the game plan that should have taken the Dollar Index below 103.00 this week. Help came from the US Federal Reserve Minutes, which showed that all board members were unanimous that cuts are not even remotely an option. Markets got spooked and are seeing a broad flow back into the Dollar, with the Dollar Index trying to break above the 200-day simple moving average again.
The DXY is back above the 200-day SMA near 103.62, and will need a daily close above to consolidate the zone. A recovery bounce towards the 100-day SMA near 104.20 is expected. If DXY manages to close and open above this zone later this week, look for a return to the 55-day SMA near 105.71 with 105.12 ahead as resistance.
The 200-day SMA will again try to play its role as a crucial support level against any downturn. If the index breaks above this level again later this week, the psychological level of 100.00 points will come into play. With a very tight economic calendar after this Wednesday and several US market participants off the table for the holidays for the rest of this week, there is room for a possible major recession.
Frequently asked questions about central banks
What does a central bank do?
Central Banks have a key mandate: guarantee price stability in a country or region. Economies constantly face inflation or deflation when the prices of certain goods and services fluctuate. A constant rise in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. It is the central bank’s job to keep demand in line by adjusting its interest rate. For the largest central banks, such as 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%.
What does a central bank do when inflation is below or above the expected target?
A central bank has an important tool to raise or lower inflation: modify its reference interest rate. At pre-communicated times, the central bank will issue a statement with its reference interest rate and give additional reasons why it maintains or modifies it (cuts or raises it). Local banks will adjust their savings and loan rates accordingly, which in turn will make it harder or easier for citizens to make a profit on their savings or for companies to borrow and invest in their businesses. When the central bank substantially raises interest rates, we speak of monetary tightening. When you reduce your reference rate, it is called monetary easing.
Who decides monetary policy and interest rates?
A central bank is usually politically independent. Members of the central bank’s policy council go through a series of panels and hearings before being appointed to a position on the policy council. Each member of that council usually has a certain conviction about how the central bank should control inflation and the subsequent monetary policy. Members who want a very loose monetary policy, with low rates and cheap loans, to substantially boost the economy, while settling for inflation slightly above 2%, are called “doves.” Members who prefer higher rates to reward savings and want to control inflation at all times are called “hawks” and will not rest until inflation is at 2% or just below.
Is there a president or head of a central bank?
Typically, there is a chair who leads each meeting, has to create a consensus between the hawks and the doves, and has the final say when votes need to be divided to avoid a 50-50 tie on whether to adjust current policy. The president will give speeches, which can often be followed live, in which he will communicate the current monetary stance and outlook. A central bank will try to push its monetary policy forward without triggering violent swings in rates, stocks or its currency. All central bank members will channel their stance toward markets ahead of a monetary policy meeting. A few days before a monetary policy meeting is held and until the new policy has been communicated, members are prohibited from speaking publicly. This is what is called the blocking period.
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.
