US Dollar whipsaws as US Retail Sales beat expectations and US restricts Nvidia sales to China
- The Greenback tradesflat as US Retail Sales come out strong.
- Earlier two US banks issued earnings and warnings around US Consumer healthiness.
- The US Dollar Index is in the middle of October’s range.
The US Dollar (USD) is trading flat after markets digest US Retail Sales. The Greenback was breaking lower as earnings from Goldman Sachs and Bank of America were good, though not showing substantial growth and profit. Meanwhile with the earnings issued, some guiding remarks for the earnings are pointing to possible staff cuts, wage freezes and focus back to core markets.
On the data front, traders are applauding Retail Sales numbers. The numbers are a beat on expectations across the board with aspecially the beat of 0.3% with 0.7%. Small side remark though is that markets are ignoring the upward revisions from the previous numbers, which makes that the actual recent numbers are lower than the previous revised ones.
Daily digest: US Dollar eases on Nvidia restrictions
- The US restricts sale of Nvidia Made-For-China in a new set of rules.
- During the US bank earnings released before the US opening bell, Bank of America CEO Brian Moynihan says that the US Consumer Spending is continuing its slowdown.
- At the start for this Tuesday, the President of the New York Fed, John Williams, was due to speak around 12:00 GMT. No real comments were retained.
- In terms of data the US Retail Sales did not disappoint with a reaction: Retail Sales went from 0.6% to 0.7% instead of the expected 0.3%. Retail Sales without Cards went from 0.6% to 0.6%, in stead of 0.2%.
- Around 13:15 GMT, the monthly Industrial Production was released for September: Previous number was 0.4% with the current at 0.3%.
- No real headlines from Michelle Bowman, a governor on the Federal Reserve’s board, who spoke around 13:20 GMT.
- US Business Inventories went higher from 0.1% to 0.4%. The Housing Marking Index, issued by the National Association of Home Builders (NAHB), was a touch softer from 44 to 40.
- Around 14:45 GMT, some headlines are expected from Thomas Barkin from the Federal Reserve Bank of Richmond.
- Equities are very much mixed with European and US equities on the back foot, while Asian equities advancenear 1%.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 90.1% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November.
- The benchmark 10-year US Treasury yield soared to 4.75% and is ticking up further as the bond sell-off continues.
US Dollar Index technical analysis: DXY back to square one
The US Dollar looks to have reached the end of the line of its relentless rally since July. It comes as no surprise that the price action is cooling down and that the US Dollar Index (DXY) has retreated from its peak. With the DXY in the middle of this month’s range, the outcome will depend on three things: the rate differential of US yields against other currencies, the risk sentiment driven by geopolitical headlines and Powell’s speech on Thursday.
A bounce above the daily trendline from July 18 might still materialize. On the topside, 107.19 is important 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 does not do the trick, 104.33 will be the best level to look for some resurgence in US Dollar strength with the 55-day Simple Moving Average (SMA) as a support level.
Central banks FAQs
What does a central bank do?
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%.
What does a central bank do when inflation undershoots or overshoots its projected target?
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.
Who decides on monetary policy and interest rates?
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%.
Is there a president or head of a central bank?
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.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
