The US Dollar weakened on Friday due to profit-taking after a strong rally earlier in the month, with the US Dollar Index (DXY) declining against a basket of six currencies. The decline came ahead of speeches by Fed officials that could provide insight into the central bank’s monetary policy stance. Additionally, US housing data released on Friday showed a decrease in Building Permits and Housing Starts, signaling a potential slowdown in the housing market. Despite this, signs of strength in the economy have been observed, and the Fed has indicated that its monetary policy approach will be guided by evolving economic data.
US Building Permits dropped to 1.428 million, down from 1.47 million in August, while Housing Starts decreased to 1.354 million compared to 1.61 million previously. Three Fed members are scheduled to give speeches on Friday, with investors looking for clues on the Fed’s evolving monetary policy. Market expectations include two 25 bps cuts in November and December, and swap futures suggest the markets are predicting two cuts by the end of 2024. The US 10-year benchmark rate stabilized near 4.10%, indicating a cautious stance in the market.
The DXY index faced resistance at the 200-day SMA, leading to a period of consolidation. The RSI and MACD indicators have flattened in positive territory, indicating neutral momentum. The index is likely to enter a correction phase following a strong rally from 100.30 to near 104.00. Support levels are at 103.50, 103.30, and 103.00, while resistances are at 103.80, 104.00, and 104.30. Market participants will be closely watching for any developments in the DXY index in the coming sessions.
Central banks play a crucial role in maintaining price stability in a country or region. Major central banks like the Fed, ECB, and BoE aim to keep inflation close to 2%. Central banks primarily use their benchmark policy rate to influence inflation, adjusting it through monetary tightening or easing. Central banks are generally politically independent, with board members having differing views on monetary policy. ‘Doves’ advocate for a loose monetary policy to boost the economy, while ‘hawks’ prefer higher rates to control inflation. The chairman or president of the central bank leads meetings, aiming to create a consensus between members with different views.
The central bank’s policies are communicated through speeches by the chairman, aiming to avoid sudden swings in rates, equities, or currency. Members of the central bank are restricted from publicly speaking in the days leading up to a policy meeting, known as the blackout period. The central bank’s goal is to guide monetary policy without causing disruptions in the financial markets. By carefully managing communication and policy decisions, central banks seek to maintain stability and support economic growth. Investors will continue to monitor developments in central bank policies and economic data to gauge the future direction of the markets.
