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US Dollar sees traders getting ready for Powell’s speech

October 19, 2023| Forex Market


  • The Greenback sees yields pushing higher, with T-notes near 5%. 
  • Investors focus on Fed Chairman Jerome Powell’s speech later on Thursday. 
  • The US Dollar Index looks broken with no clear sense of direction.

The US Dollar (USD) is facing questions from traders and investors as recent reports reveal that yields have been partially going up because of massive selloffs in bond holdings from China and Japan. Meanwhile the visit from US President Joe Biden in Israel has not played out as the White House wanted to, with an in person meeting with the Jordan Crown Prince Abdullah II bin Al-Hussein cancelled just hours before the US President touched ground in Tel Aviv. Add to that, the rate differential on the US-side going rouge, not for good reasons: China and Japan have sold billions of US holdings in September, and the Greenback is losing a little its status as king. 

On the data front, traders will focus on the US Federal Reserve (Fed) Chairman Jerome Powell comments at his speech in the New York Economic Club. Where last week a few Fed members suggested the central bank is done hiking, some hawkish comments on Thursday show no unanimity on the current stance from the board, which means that Powell will likely refrain from making bold statements and will leave traders clueless. 

Daily digest: US Dollar geras up for Powell

  • The calendar this Thursday starts with the weekly Jobless Claims: Initial Claims went to 198,000, from 209,000 where 212,000 was expected. Continuing Claims were set to head from 1,702,000 to 1,710,000 and instead went to 1,734,000.
  • The monthly Philadelphia Fed Manufacturing Survey for the month of October has been published as well. Expectation was that there would still be a contraction in the region’s manufacturing activity, but less severe than in September, from -13.5 to -6.6. The number came out below expectations at -9.0.
  • Existing Home Sales data for September was expected to fall from 4.04 million units to 3.89 million, though went up to 3.96 million. 
  • All eyes are on US Fed Chairman Jerome Powell, due to speak near 16:00 GMT in the New York Economic Club. 
  • A big slew of Fed speakers will take the stage as well later this Thursday: Chicago Fed President Austan Goolsbee is due to speak at 17:20 GMT. Near 20:00 GMT, Atlanta Fed President Raphael Bostic is due to speak. Philadelphia Fed President Patrick Harker is speaking at 21:30 GMT. To round off, Dallas Fed President Lorie Logan is due to speak at 23:00 GMT.
  • Equities are taking a turn for the worse as Elon Musk mentioned during an earnings call from Tesla that elevated rates are starting to hurt demand. Meanwhile, the big Chinese real-estate company Country Garden missed a payment on an USD bond. All equities in Asia are down over 2%, while European equities are nearly flat in the last trading hours and US Futures are overall positive. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 93.9% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
  • The benchmark 10-year US Treasury yield rises to 4.94% as the bond market is shaken up by the surprise massive bond sales from China and Japan, amounting to $118 billion for September alone.  

US Dollar Index technical analysis: Stuck in consolidation

The US Dollar is entering the twilight zone where it might start to hurt. The US Dollar Index (DXY) is starting to float, not really breaking out in any upside or downside sense. The fact that the US 10-year rates are starting to hit 5% is a sign on the wall, as often 5% accounts as a psychological barrier where an economy might start to struggle to meet up with its funding needs. 

A bounce above the daily trendline from July 18 might still materialise, although this level is starting to slip further away. On the topside, 107.19 is an important level to reach. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that fails to do the trick, 104.33 will be the best level to look for resurgence in US Dollar strength, with the 55-day Simple Moving Average (SMA) as a support level. 

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.

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