US Dollar soft as markets digest Trump words at Davos
- US traders keep watch on the Federal Reserve’s looming rate decision despite ongoing headlines about cuts.
- President Trump renews criticism of trade imbalances, sparking market chatter about new tax cuts and oil price demands.
- Solid US growth between 2.5% and 3.0% helps underpin the Greenback, though policy ambiguities weigh on sentiment.
- Jobless claims rise slightly, suggesting that labor market conditions remain resilient.
The US Dollar has turned flat during the US trading session on Thursday. US President Trump spoke at the World Economic Forum in Davos. The US Dollar Index (DXY) is back above 108.00, though it is facing some mild selling pressure again.
Daily digest market movers: USD sees red despite Trump hinting at tariffs for Canada and Mexico
- During his World Economic Forum appearance, President Trump restated that the US trade deficit with Canada is unsustainable and underscored his intent to seek deeper tariff measures if deemed necessary.
- He also proclaimed his commitment to slashing business taxes, pressuring OPEC to reduce oil prices and aiming to influence the Federal Reserve’s independence.
- New unemployment filings climbed to 223K for the week ending January 18, slightly above prior forecasts. The insured unemployment rate stands at 1.2% with continuing claims edging higher to nearly 1.9 million.
- Growth in the US economy remains robust at roughly 2.5%–3.0% annualized, powered by hiring gains that support consumption and keep inflation somewhat buoyant. Analysts widely expect the Fed to hold rates steady next week, seeing no compelling argument to cut soon.
- Kansas City Fed Manufacturing data is slated for release with the Services gauge following on Friday. Markets remain attentive to potential headwinds, but leading indicators suggest the US economy retains its underlying strength.
DXY technical outlook: Indicators struggle as the index fails to hold near 108.50
The US Dollar Index continues to fight off selling pressure but has yet to sustain gains beyond 108.50. Momentum signals, such as the Relative Strength Index (RSI), remain below the 50 threshold, indicating a weaker bias. The MACD’s red bars are expanding, hinting at growing bearish momentum.
The DXY stabilized around 108.20, though a lack of follow-through could lead to more downside. Without fresh catalysts to renew buying interest, the Greenback’s rebound may be short-lived, leaving it vulnerable to continued profit-taking.
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.