US Dollar continues struggling ahead of eventful week
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Patricio Martín
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17 Mar @ 06:33 (GMT+0)

US Dollar continues struggling ahead of eventful week

  • DXY dips toward session lows as traders brace for Trump-Putin meeting.
  • US Retail Sales disappoint, reinforcing concerns over economic momentum.
  • Federal Reserve decision looms with markets positioning cautiously.
  • Technical indicators suggest potential stabilization after sharp losses.

The US Dollar remains under pressure at the start of the week, drifting lower as investors digest softer-than-expected Retail Sales data and brace for key political developments. On Tuesday, President Donald Trump is set to engage in discussions over Ukraine with Russian President Vladimir Putin. Meanwhile, bond yields are directionless as traders await the Federal Reserve's (Fed) policy update on Wednesday, a crucial event that will shape market sentiment moving forward.

Daily digest market movers: Geopolitical tensions and economic uncertainty ahead of Fed meeting

  • President Trump confirmed he will engage in talks with Putin on Tuesday, emphasizing that discussions will center around land agreements and resource allocations in Ukraine. The US leader suggested that a resolution is possible, though uncertainties remain.
  • US Retail Sales figures for February came in weaker than forecast, exacerbating concerns over consumer spending trends.
  • Monthly Retail Sales rose just 0.2%, falling short of the projected 0.7% increase, following a downward revision for January’s contraction to -1.2% from -0.9%.
  • Annualized sales growth slowed to 3.1%, down from a revised 3.9% (previously 4.2%), signaling a cooling in consumer demand.
  • The CME FedWatch Tool indicates an overwhelming consensus that the Fed will maintain current interest rate levels at Wednesday’s meeting. However, expectations for a potential rate cut in May have inched higher, reaching 27.5%.
  • US Treasury yields exhibit a mixed performance ahead of the Fed’s decision as traders assess the balance between slowing economic indicators and inflationary risks.

Technical outlook: Stabilization in sight?

The US Dollar Index (DXY) struggles to hold ground below 104.00, but with momentum indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) signaling oversold conditions, a temporary relief bounce could materialize. Key resistance stands at 104.50, while immediate support rests near 103.50. Despite some signs of stabilization, broader sentiment remains fragile amid lingering geopolitical and economic uncertainty.

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.