The Greenback index failed to hold above 90 points after technical rebound and went down again, bracing for a breakout of the February low at 89.65. US jobless claims were mixed, as initial claims hit a new post-pandemic low at 444K while continuing claims were a tad higher than the forecast.
The weak dollar is due to the mix of rising inflation in the US and the Fed buying up short-term bonds to keep short-term rates low. As a result, bonds are unattractive for investments (low nominal rates + high inflation expectations), which is why investment demand for the US currency may be under pressure.
The next stop on the USD index is a support area near this year's low (~ 89.25):
In the short term, the dollar came under pressure again, as US equity markets were able to rally on Thursday, including on encouraging labor market data, despite very controversial setup (widespread decline in Asian, European and US index futures on Thursday). From a technical point of view, the risks of correction in the US market will decrease if SPX is able to cross today and gain a foothold above 4180 points:
Strong data on retail sales in the UK offered significant support to the cable. Retail sales in April grew twice the forecast, which could not go unnoticed in the FX. GBPUSD has crossed over 1.42 and is poised to test the year high at 1.4241 next week, while EURGBP appears to complete its bullish correction and prepares to move below 0.86. The bets on early tightening of credit conditions by the Bank of England mount which justifies better position of the Pound among major peers.
EURUSD was supported by the EU economic reports, in particular PMIs in the services and manufacturing sectors. They came out better than expectations which increases investment appeal of European assets, as economic risks decline thanks to rebound in the data and retreating virus.
The European and British data will be followed by data on activity in manufacturing and services in the US from Markit. A positive surprise is expected, which is likely to exacerbate the downward movement of the dollar, as the stock market is likely to react upward to the strong report.
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