Market Data 
- The US Dollar overcomes brief deep on the back of weaker US data.
- Fed’s Kashkari paints a gloomy view in terms of timing before inflation is back in range.
- The US Dollar index jumps back to near 105.50.
The US Dollar (USD) is seeing its earlier gains from the ASIAPAC session being trimmed back after softer Jobless Claims data and even worse Housing data. Another data point from the Housing Sector that is pointing to easing or softening in the sector. Add in there the uprise in Continuing Claims, where rather a decline was expected, and again the US Dollar is not really convincing here in terms of performing data.
On the US economic data front, only the US Federal Reserve speakers ahead. Although not that much is expected because recent messages were already quite hawkish. How much more hawkishness can you add? There is a limit and looks that that limit has been reached; with markets being fed up receiving the same hawkish message for weeks from Fed officials.
Daily digest market movers: Fed remaining hawkish
- An eventful Asia-Pacific session triggered substantial moves in the Forex space:
- The People’s Bank of China (PBoC) has let loose its daily fixing, weakening to a fresh low for 2024 against the US Dollar.
- The New Zealand Dollar (NZD/USD) advanced substantially against the Greenback after the country’s economy expanded by 0.2% in the first quarter, which means the country is out of its brief technical recession.
- Asian equities rolled over with concerns that the Chinese economy might be doing worse than markets anticipated, seeing the actions from the PBoC to devalue its currency.
- A big batch of data was released at 12:30 GMT:
- May’s Building Permits and Housing Starts:
- Building Permits misses estimates and fell back from 1.44 million to 1.386 million.
- Housing Starts also declined, missing upbeat estimates, by heading from 1.352 million to 1.277 million.
- Weekly Jobless Claims:
- Initial Claims went from a revised 243,000 to 238,000.
- Continuing Claims jumped from 1.813 million to 1.828 million people out of a job.
- The Philadelphia Fed Manufacturing Survey for June missed the mark as well and came in at 1.3, coming from 4.5 and missing the consensus of 5.
- May’s Building Permits and Housing Starts:
- Two US Federal Reserve Speakers to look out for was well this Thursday:
- At 12:45 GMT, Federal Reserve Bank of Minneapolis President Neel Kashkari participated in a fireside chat as part of the Michigan Bankers Association Annual Conference. Kashkari said that it might take up to a year or even two year before inflation is back to 2% target. Wage growth is still to high to get their quicker, Fed’s Kashkari commented.
- Near 20:00 GMT, Federal Reserve Bank of Richmond President Thomas Barkin participates in a conversation and Q&A session about the economic outlook at the Richmond Risk Management Association.
- Equities are still in good tone to snap the negativeness from the Asian trading session. European equities are holding on to gains while US futures are up near 0.50% ahead of the US opening bell.
- The CME Fedwatch futures for September are further backing in a rate cut, with odds now standing at 59.5% for a 25 basis point cut. A rate pause stands at a 34.1% chance, while a 50-basis-point rate cut has a slim 6.4% possibility.
- The US 10-year benchmark rate is trading at 4.28%, ticking up from the 4.24% earlier this Thursday and after the comments from Fed’s Kashkari.
US Dollar Index Technical Analysis: Fed pushing against data
The US Dollar Index (DXY) is putting up a heavy fight, with a bit of a thank you to the Asian uncertainty after the PBoC let loose its stronger Yuan fixing. With concerns growing that there might be something brewing in China with more monetary policy coming in, some slumbering support for the DXY could linger on and limit any substantial downturns.
On the upside, there are no big changes to the levels traders need to watch out for. The first is 105.52, a barrier that held during most of April. The next level to watch is 105.88, which triggered a rejection at the start of May and will likely play its role as resistance again. Further up, the biggest challenge remains at 106.51, the year-to-date high from April 16.
On the downside, the trifecta of Simple Moving Averages (SMA) is still playing as support. First is the 55-day SMA at 105.14, safeguarding the 105.00 figure. A touch lower, near 104.61 and 104.48, both the 100-day and the 200-day SMA are forming a double layer of protection to support any declines. Should this area be broken, look for 104.00 to salvage the situation.
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.
