- The US Dollar flat for a second day in a row this week.
- All eyes shift towards Fed Chairman Jerome Powell heading to Capitol Hill.
- The US Dollar Index (DXY) is not ging anywhere and is residing above 108.00 wh.ile looking for direction
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, resides above 108.00 and is looking for a catalyst to move either way. The Greenback looks to be immune to US President Donald Trump’s tariff talks. While China silently slapped some minor tariffs on US goods in a tit-for-tat move on Monday, Trump introduced a 15% levy on steel and aluminum for all countries importing that will come into effect on March 12.
The economic calendar this Tuesday is being taken over by the Federal Reserve (Fed). Besides Fed Chairman Jerome Powell testifying before Congress, three Fed speakers are due to make an appearance. Traders will want to hear if the central bank has plans for any changes in its monetary policy soon. Meanwhile head of the Department of Government Efficiency (DOGE), Elon Musk, has mentioned the Fed is the next sucject for audit.
Daily digest market movers: DOGE to look at Fed
- Elon Musk on Sunday said that the Fed could face scrutiny as the Department of Government Efficiency (DOGE) continues to audit federal agencies and spending. Musk wrote on X in response to a user’s post about the billionaire’s support for an audit of the Fed that the central bank isn’t above scrutiny from DOGE, Reuters reports.
- At 11:00 GMT, The National Federation of Independent Business (NFIB) has released its Business Optimism Index for January. The number came in at 102.8, below the 104.6 estimate and down from 105.1 in the December reading.
- Fed Chairman Jerome Powell will keep his semiannual testimony before Congress at 15:00 GMT.
- More Fed speakers are lined out to speak throughout the day:
- At 13:50 GMT, President of the Federal Reserve Bank of Cleveland Beth Hammack will talk at the 2025 Economic Outlook Conference at the Central Bank Center.
- At 20:30 GMT, Federal Reserve Governor Michelle Bowman speaks at the Iowa Bankers Association Bank Management and Policy Conference in Des Moines.
- At 20:30 GMT, Federal Reserve Bank of New York President John Williams also delivers keynote remarks at the CBIA Economic Summit and Outlook 2025, organized by the Connecticut Business and Industry Association (CBIA) in Connecticut.
- Equities are struggling this Tuesday with the tariff hangover starting to weigh on them. All major European and US indices are in the red, though less than 0.6%.
- The CME FedWatch tool projects a 93.5% chance that the Fed will keep interest rates unchanged at its next meeting on March 19.
- The US 10-year yield is trading around 4.53%, ticking up further for a second day in a row and recovering further from its fresh yearly low of 4.40% printed last week.
US Dollar Index Technical Analysis: Things could get really messy
The US Dollar Index (DXY) is really turning into a snooze fest this week. No real movement in the Greenback as of yet, despite plenty of headlines. Though US yields are the asset to monitor, with Powell’s testimony ahead, things might start to move from now.
On the upside, the first barrier at 109.30 (July 14, 2022, high and rising trendline) was briefly surpassed but did not hold last week. Once that level is reclaimed, the next level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, 107.35 (October 3, 2023, high) is still acting as strong support after several tests last week. In case more downside occurs, look for 106.52 (April 16, 2024, high), 106.14 (100-day Simple Moving Average), or even 105.89 (resistance in June 2024) as better support levels.
US Dollar Index: Daily Chart
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.
