Soft Data Weighing on USD

The US Dollar remains muted as we move through into the back end of the week. Yesterday, advance Q1 GDP came in a touch below forecasts at 3.2% vs 3.3% expected. On the back of a run of weaker-than-forecast prints recently (retail sales, ISM services PMI, consumer confidence), the US Dollar has lost some upside steam, despite the Fed taking a more hawkish view. The FOMC minutes showed that the Fed is in no rush to cut rates, warning that it will keep rates where they are as long as needed to ensure inflation is moving back down to target sustainably.  

Fed’s Williams: No Rush

This message was echoed yesterday by New York Fed president Williams who warned that more work was needed to get inflation back down to target. While Williams agreed that the process of lowering rates would likely come later this year he reaffirmed the message from the FOMC of being in no rush to start easing.

Market Vs Fed

The current price action in USD looks a little disjointed from this message, however. With USD trailing lower over the last week, either traders are simply focusing on the fact that rate cuts are coming this year, limiting the impetus for fresh USD buying or, traders sense that rate cuts will likely come sooner than the Fed currently projects. If recent USD data weakness continues, this will likely see the market bringing its rate cut pricing forward from the current July level, weighing on USD further near-term.

Technical Views

DXY

The rally has stalled for now into a test of the 104.95 level with the subsequent correction lower seeing the market breaking down below the bull channel. While price holds at the 103.48 support, however, focus is on a continuation higher with 105.91 the next bull target. Should we break current support, however, 101.22 sits as the next bear target, in line with bearish momentum studies readings.