- The DXY index bottomed at weekly lows and managed to trim Wednesday’s losses
- The Fed’s stance seems slightly dovish, unmistakably resisting overreaction to two months of hot inflation.
- S&P PMIs came in mixed, Jobless Claims figures came in stronger than expected.
The US Dollar Index (DXY) is currently trading at 103.80, marking a 0.50% increase, almost trimming all of Wednesday’s losses. The Greenback gained ground after mixed S&P preliminary PMIs from March and strong weekly Jobless Claims.
The overriding consensus is a start to an easing cycle in June and the timing of the next cut will be dictated by incoming data. With recent hot inflation figures, the Fed revised its inflation projections higher. However, Jerome Powell confirmed there will be no overreaction from the bank. This consideration pushed the Fed’s stance more dovish, implying a less aggressive approach toward rates. The Dot Plot showed that the median rate prediction by the end of this year remains at 4.6%.
Daily digest market movers: DXY is trending higher near 103.80, finding its footing after a post-FOMC sell-off
- S&P Global’s initial Purchasing Managers Survey for March showed a slight decrease in the Services PMI, dropping from 52.3 to 51.7.
- Conversely, there was an increase in the Manufacturing PMI, rising from 52.2 to 52.5. The Composite PMI, which stood at 52.5 in February, showed a slight dip to 52.2.
- Initial Jobless Claims for the week ending March 15 came in at 210K, lower than the 215K expected.
- After the FOMC’s decision, US Treasury bond yields are increasing with the 2-year yield trading at 4.59%, the 5-year at 4.25%, and the 10-year at 4.27%.
DXY technical analysis: DXY displays bullish momentum, trims Wednesday’s losses
The technical outlook for DXY reflects a recovering bullish momentum. This viewpoint is primarily driven by the rising slope and positive territory of the Relative Strength Index (RSI), which signals increasing buying pressure. In addition, the augmentation of green bars in the histogram of the Moving Average Convergence Divergence (MACD) signifies that buying momentum is mounting.
In addition, the index recovered above the convergence of the 20, 100, and 200-day Simple Moving Averages (SMAs), further reinforcing a resilient bullish traction. If the DXY manages to stay above the 103.50-70 area, the outlook will be bright for the DXY.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like 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%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
