In the early Asian session on Monday (September 25), the US dollar index was at 105.58. The focus was on the US consumer confidence and personal consumption expenditure (PCE) price index in September. Stable data will support a more hawkish outlook, boosting the dollar buying to challenge the 106 mark, suppressing gold to continue to be bearish at 1925. A spokesman for the Federal Reserve confirmed that about 300 employees will be laid off before the end of this year, the first layoff since 2010, and the loss exceeded $100 billion. The alarm bell for Bitcoin selling sounded, and the US Securities and Exchange Commission has been slow to approve the Bitcoin spot ETF. The price of the currency may accelerate its decline after falling below $26,000.
Reuters reported that a Fed spokesman said the layoffs were aimed at employees of the Fed's 12 regional banks, mainly affecting positions in the information technology field, including some positions that are no longer needed due to the popularity of cloud computing software, as well as positions related to the Fed's payment processing systems, which are being integrated.
Although the spokesperson would not directly disclose the reason, he said the reduction in manpower was the result of a combination of staff losses, including retirements and layoffs. From 2022 to 2023, the number of Federal Reserve System employees under the budget will be reduced by about 500 from 24,428 to 23,895, including regional banks, the Washington Board of Directors, and three smaller departments.
Since March 2022, the Fed has raised interest rates from 0-0.25% to 5.25-5.5%, which seems to have backfired on the Fed. The bank recently released data showing that its losses have exceeded $100 billion because the interest paid to banks on Fed reserve deposits exceeded the Fed's income from its approximately $7.5 trillion bond and mortgage-backed securities (MBS) portfolio.
Unlike federal agencies that spend funds allocated by Congress, the Fed raises its own funds, earning income from its assets and charging banks a range of service fees to cover its own annual expenses of about $6.3 billion. The bank system has nearly 24,000 employees in Washington and other cities across the country.
In most previous years, the profits generated by the Federal Reserve would be turned over to the U.S. Treasury. However, since the hawkish interest rate hikes and active control of soaring inflation, the bank's expenses have exceeded its income every year, which is actually equivalent to giving the U.S. Treasury an IOU to be paid later.
The report also mentioned that there is no direct correlation between layoffs and the Fed's losses, but the Fed's operations have been closely watched by congressional Republicans. They are concerned about the Fed's in-depth research on issues such as climate change and the economics of inequality, believing that these issues seem to be beyond the scope of its monetary policy and bank regulatory powers.
The number of Fed employees has continued to decline, from less than 24,000 in 2003 to 19,735 in 2010, as the era of paper checks ended, allowing the bank to cut the large number of staff needed to clean and process these documents. Then, with the outbreak of the financial crisis and economic recession in 2007-2009, Congress added new responsibilities to the Fed, promoting the modernization of the Fed and expanding its role in processing payments, as well as assuming the responsibility of maintaining new financial stability. Since 2010, the number of employees at the bank has increased every year until this year.
The US dollar overwhelms gold and challenges the 106 mark. PCE will become a key data
Last Friday's Purchasing Managers Index reports raised concerns about the trajectory of demand conditions in the US economy after the interest rate hike cycle and rising inflation. The US S&P Global Manufacturing PMI rose to 48.9 in September from 47.9 in August, indicating that manufacturing business activity continued to contract. The service PMI fell to 50.2 from 50.5 last month, and the composite PMI fell to 50.1, a slight decline from 50.2 in August.
During the FOMC meeting, interest rates were stable in the range of 5.25% to 5.50%. In terms of macroeconomic forecasts, most members still expect further rate hikes later this year. Boston Fed President Susan Collins and San Francisco Fed President Mary Daly stressed that although inflation is cooling, further rate hikes are still necessary. It is worth noting that rising interest rates increase the opportunity cost of investing in non-yielding assets, which means that the outlook for gold is negative.
U.S. consumer confidence data for September kicks off a key week for the dollar, with solid consumer confidence supporting a positive consumer outlook and a more hawkish Fed rate trajectory. Finalized second-quarter GDP and unemployment claims are also worth considering ahead of a busy Friday session. Initial jobless claims will draw more investor interest, and a surge should ease concerns about a more aggressive Fed rate trajectory.
However, US economic indicators on Friday could determine the direction of the dollar ahead of the release of the US Non-Farm Payrolls (NFP). The core PCE price index, personal income and spending will provide the market with a basis for responding to consumption and demand-driven inflation. In addition to the data, Fed speakers will also affect the dollar, and investors may react to hints that the Fed plans to step on the policy brakes.
The core PCE price index is expected to fall from 4.2% to 3.9% as expected by the market, and these data could provide clear direction for gold prices.
Bitcoin sell-off warning bell sounds, falling below 26,000 may intensify
FXEmpire analyst Bob Mason said Bitcoin is still below the 50-day and 200-day moving averages, reiterating bearish price signals. The 50-day moving average crossed the 200-day moving average, issuing a sell-off warning. Bitcoin fell below $26,500 to support a move to the trend line, and a sustained break below the trend line would see support at $25,506.
However, if Bitcoin breaks above the $26,755 resistance, it will support a move towards the EMAs. However, a favorable crypto event is needed for the bulls to charge towards $27,000. The SEC’s ongoing case against Ripple and Coinbase, and the progress of a Bitcoin spot ETF remain in focus.
The 14-day RSI reading of 49.73 supports Bitcoin’s move below the trendline before entering oversold territory.
