The US Dollar (USD) has faced a significant setback following the release of July’s disappointing jobs report. This has sparked increased expectations for a rate cut by the Federal Reserve in September. The US Federal Reserve continues to monitor economic data closely and has signaled readiness to respond to any signs of weakness in the US economy. The CME FedWatch Tool currently indicates a 90% chance of a rate cut in September, adding further pressure on the USD.
The latest US Nonfarm Payrolls (NFP) report revealed that job growth in July fell short of market expectations. With only 114K jobs added, compared to the expected 175K, and a rise in the Unemployment Rate to 4.3% from 4.1% in June, the US economy showed signs of weakness. Additionally, the annual wage inflation rate decreased to 3.6% from 3.8%, indicating weak demand for labor. These factors have contributed to the pressure on the USD and have fueled speculation of a potential interest rate cut by the Fed.
The DXY index, which measures the USD against a basket of major currencies, experienced a sharp decline following the release of the jobs report. The index dropped below both the 20-day and 200-day Simple Moving Averages (SMAs), signaling a bearish trend. Technical indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) also point to increased selling pressure on the USD. Support levels for the DXY index are now seen at 103.00, 102.50, and 102.30, with resistance levels at 103.50 and 104.00.
Central banks play a crucial role in maintaining price stability within a country or region. One of the primary objectives of major central banks like the US Federal Reserve is to keep inflation close to 2%. Central banks achieve this by adjusting their benchmark policy rate, also known as the interest rate. By issuing statements on their policy decisions, central banks communicate their stance on monetary policy and provide guidance to financial markets.
Central banks use monetary policy tools such as interest rate adjustments to control inflation and stimulate economic growth. When a central bank raises interest rates, it is known as monetary tightening, aimed at curbing inflation. Conversely, when a central bank cuts interest rates, it is called monetary easing, aimed at boosting economic activity. The decisions made by central bank policy boards are based on a consensus among board members, which may include ‘doves’ who prefer low rates to stimulate growth and ‘hawks’ who prioritize inflation control.
Central banks strive to communicate their monetary policy decisions clearly to the public and financial markets. The chairman or president of a central bank leads policy meetings and delivers speeches to provide insights into the bank’s current stance and future outlook. Central banks aim to avoid causing excessive market volatility by carefully managing their communication strategies. Members of central bank policy boards are usually prohibited from speaking publicly in the days leading up to a policy meeting, known as the blackout period.