U.S Dollar Bugs Sleep on Weak Factory Data

In London, greenback bugs were fast asleep on Tuesday morning, remaining near the bottom of their recent range.

U.S. factory data that came in worse than expected, as well as growing bets that monetary policy would normalize faster in other countries, contributed to the dollar index posting losses.

In September, industrial production in the U.S. declined 1.3% month-on-month and grew at a slower rate than expected, 4.6% year-on-year.

At the time of writing, the U.S Dollar Index, which measures the greenback against a basket of other currencies, was trading around 93.727 index points after losing more than 230 basis points on Monday.

Now, currency traders are watching the 93.60-93.80 support levels, as a deterioration at this level could lead to a price dive, with sellers targeting the 93.35-93.50 support levels.

For the past three weeks, the safe-haven currency has fluctuated between 93.671 and a one-year high of 94.563 hits last Tuesday. Despite these developments, the dollar has been on a downward trend since November’s asset tapering by the U.S Federal Reserve and the first interest-rate hike in 2022 already priced in.

The world’s largest economy is likely to be insulated by the continuing energy market bottleneck, which is “casting a shadow over Europe and China’s recovery prospects,” which “should continue to favor the dollar at the front -end,” not down beyond 93.50

If short-term interest rates become so strong that they price in a global monetary tightening cycle that drives equities lower, the spike in global inflation and interest rates may boost the dollar as a safe haven asset at least for the mid term.