The US Dollar has seen a slight rebound after hitting a low on Monday, with all eyes on the US Federal Reserve’s upcoming meeting where a rate cut is highly anticipated. The NY Fed Manufacturing Index turned positive, leading to a shift in trader sentiment. The Fed’s decision on the size of the rate cut is crucial, with the market divided on whether a big or small cut is needed to stimulate the economy.
Economic data has been relatively quiet leading up to the Fed meeting, with the US Retail Sales data scheduled for release on Tuesday. The NY Empire State Manufacturing Index for September showed a surprising jump to +11.5, signaling improved economic conditions. Equities have been mixed, with European equities and US futures dipping slightly. The US 10-year benchmark rate remains close to a 15-month low of 3.60%.
Technical analysis of the US Dollar Index suggests a potential breakout to the downside, as markets anticipate a 50 bps rate cut by the Fed. The upper band for the index is at 101.90, with a significant upside needed to reach higher levels. On the downside, the lower band at 100.62 has provided support in recent weeks, but a break could lead to further declines towards key levels from previous years.
Central banks play a crucial role in maintaining price stability in economies by controlling inflation through policy rate adjustments. The US Federal Reserve, European Central Bank, and Bank of England aim to keep inflation close to 2%. Central banks use interest rate changes to influence savings and lending rates, which in turn impact economic growth. Central bank policy members, known as ‘doves’ and ‘hawks’, have varying views on monetary policy and inflation targets, leading to debates during policy meetings.
Central bank meetings are led by a chairman or president who must navigate differing opinions among policy members and communicate the monetary policy stance to the markets. The central bank aims to influence markets without causing excessive volatility in rates, equities, or currencies. Members of the central bank are restricted from public speaking in the days leading up to a policy meeting to maintain market stability. Overall, central banks use monetary policy tools to manage economic conditions and achieve their mandate of price stability.
