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US Dollar tallies a winning day despite weak ADP figures, eyes on Jobless Claims

  • The DXY Index is witnessing mild gains, above the 20-day SMA near 104.10.
  • ADP Employment Change for November came in lower than expected; Unit Labor Costs were revised lower.
  • US yields are declining, limiting the upside for the USD.

The US Dollar Index (DXY) is steadily rising, trading at 104.10 and treading close to the 20-day SMA despite softer Automatic Data Processing (ADP) jobs figures and consolidating its weekly gains. The focus is still on the Nonfarm Payrolls report, as investors will get a clearer picture of the labor market to continue placing their bets on the next Federal Reserve (Fed) decisions.

Mixed labor market data and cooling inflation signal a potentially dovish stance by the Fed, yet officials are not ruling out further tightening. This conjecture suggests a cautious but flexible approach to their monetary policy, so the incoming data is closely watched. Upcoming labor market data on Friday will play an integral role in shaping expectations for the Fed's decisions, which could have an impact on US Dollar price dynamics.


Daily Market Movers: US Dollar holds its ground despite soft labor market figures

  • The US Dollar is trading with gains, pushing above the 20-day SMA at 104.10.
  • The Unit Labour Costs for Q3 was revised to -1.2%, while November's ADP Employment Change came in lower than expected at 103K, falling short of the 130K estimate. 
  • Investors await key economic reports due on Friday. Nonfarm Payrolls,Unemployment Rate and Average Hourly Earnings for November will be closely monitored.
  • US bond yields are declining. The 2, 5, and 10-year bonds are seen at 4.59%, 4.11%, and 4.11%, respectively, limiting the upward strength of the USD.
  • Market expectations are leaning toward a no-hike decision at the December Fed meeting while also projecting potential rate cuts by mid-2024, according to the CME FedWatch Tool.

Technical Analysis: US Dollar shows bullish resilience and pushes above the 20-day SMA

The Relative Strength Index (RSI) shows a favorable bias, existing with a positive slope despite being in negative territory. This buying momentum is bolstered further by the Moving Average Convergence Divergence (MACD), which exhibits rising green bars.

That being said, the index has yet to consolidate above the 20-day Simple Moving Average (SMA) and resides below the 100-day Simple Moving Average (SMA), indicating strong selling forces are at play. However, the bulls dominate the broader time horizon as the asset operates above the 200-day SMA.

Support levels: 104.00 (20-day SMA),103.60, 103.30, 103.15
Resistance levels: 104.10, 104.40 (100-day SMA), 104.50.

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

Patricio Martín

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

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