US Dollar (DXY) Index News: Fed Caution, Recession Concerns Weigh

U.S. Dollar Index Down as Key Economic Data Awaited

The U.S. Dollar Index (DXY) edged lower on Thursday, retracing earlier gains, as traders awaited crucial U.S. economic reports. The sell-off coincided with the release of significant data, including Final GDP, Weekly Unemployment Claims, and the Final GDP Price Index. Attention now turns to the impending release of the Chicago PMI and Pending Home Sales reports, with a particular focus on the Revised University of Michigan Consumer Sentiment and Inflation Expectations data, which could sway market sentiment.

Robust Fourth Quarter GDP Growth

The U.S. economy exhibited stronger-than-previously-estimated growth in the fourth quarter, fueled by robust consumer spending and business investment. Gross domestic product (GDP) expanded at a 3.4% annualized rate, surpassing expectations and reflecting upgrades in various sectors, including consumer spending, nonresidential fixed investment, and state and local government spending.

Resilient Labor Market Supports Growth

The economy’s resilience is underscored by a robust labor market, driving elevated wage growth and sustaining consumer spending. Despite concerns over a potential recession, initial claims for state unemployment benefits fell, indicating ongoing stability in employment figures. Most employers are retaining their workers, contributing to a positive outlook for economic growth.

Market Sentiment and Dollar Performance

In late U.S. trading hours on Wednesday, remarks by Fed Governor Christopher Waller suggested a cautious approach to rate cuts, boosting market momentum. Consequently, market expectations for the timing of the first rate cut have moderated, influencing trading dynamics. Attention now shifts to U.S. core PCE inflation figures and an upcoming appearance by Fed Chair Jerome Powell, which could further influence market sentiment.

Intervention Watch

Market participants are closely monitoring potential intervention in currency markets, particularly regarding the yen. Concerns over the impact of U.S. inflation data on dollar-yen movements, coupled with Japanese authorities’ verbal warnings, highlight the potential for market volatility. The Easter holiday adds an additional layer of uncertainty, impacting liquidity and investor sentiment.

Short-Term Forecast

The U.S. Dollar Index (DXY) faces downward pressure amid uncertainty surrounding economic growth and monetary policy. Despite earlier gains, concerns over a potential recession and cautious remarks from Fed officials have dampened investor sentiment.

With ongoing market volatility and potential intervention in currency markets, the outlook for the dollar remains bearish. Traders should exercise caution and closely monitor economic indicators and central bank actions as they navigate evolving market conditions.

Technical Analysis

The US Dollar Index (DXY) is trading lower on Thursday after reversing earlier gains. The price action suggests the February 14 main top at 104.976 is being defended by significant bearish traders.

A closing price reversal top at the close will indicate the selling is greater than the buying at current price levels. If this creates enough downside momentum then look for the selling pressure to possibly extend into the moving average support cluster at 103.778 to 103.744.

The 50-day and 200-day moving averages are controlling both the intermediate and long-term trends.