US Dollar struggles to gain ground ahead of high-tier data
- Strong Consumer Confidence and Housing sector data didn’t trigger movements in the USD.
- Next highlight will be Wednesday’s Fed’s Beige Book report where markets will get a clearer outlook on the US economy’s health.
- PCE and GDP revisions are the week’s highlights.
The US Dollar Index (DXY) is slowly declining as US markets prepare for the release of economic data this week. On Tuesday, the US reported strong Confidence and Housing sector data, but the USD remains soft ahead of high-tier data to be released during the week.
Despite some mild losses and the markets continuing to give up hopes for an interest rate cut in June or July, the resilient US economy allows the Fed to maintain its cautious stance, which cushions the US Dollar. Thursday’s Gross Domestic Product (GDP) and Personal Consumption Expenditures (PCE) will set the pace for bets on upcoming Federal Reserve (Fed) decisions. The current odds predict a first cut in September.
Daily digest market movers: DXY experiences mild losses despite strong low-tier data, focus on Fed’s cautious stance
- The Conference Board’s Consumer Confidence has come out stronger than expected at 102, versus the anticipated 96.
- Furthermore, the S&P/Case-Shiller Home Price Indices beat expectations with 7.4% YoY print in March.
- April’s Personal Consumption Expenditure (PCE), the Fed’s preferred gauge of inflation, is seen remaining at 2.7% YoY for headline inflation and 2.8% for core. The Q1 GDP is expected to be revised higher.
- The outcome of this data will continue to shape expectations on the easing cycle, dictating the pace of the USD.
DXY technical analysis: Greenback witnesses sustained selling pressure and bear command
The daily chart indicators continue to show mounting steady bearish momentum in the DXY. The Relative Strength Index (RSI) maintains a negative slope and remains in a selling zone, indicating prevailing selling pressure. This is even more evident with the red bars of the Moving Average Convergence Divergence (MACD) indicator that showcase bearish momentum.
In terms of Simple Moving Averages (SMAs), despite the DXY operating below the 20-day SMA and displaying bears’ short-term efficiency, it continues to remain above the 100 and 200-day SMAs, suggesting bulls have relative strength over a more extended timeline.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.