US Dollar (DXY): Inching Lower as Fresh Economic Data Weighs on Market Sentiment

Highlights

• U.S. dollar edges lower despite higher Treasury yields
• Fresh economic data dampens market sentiment
• First Republic Bank’s woes raise concerns about small U.S. banks

Overview

The U.S. Dollar is edging lower against a basket of major currencies on Wednesday despite slightly higher Treasury yields. The price action suggests investors are positioning themselves ahead of Thursday’s report on economic growth and Friday’s report on inflation. Later today, investors will get the opportunity to react to the latest data on Durable Goods, Trade Balance and Wholesale inventories.

At 06:43 GMT, June US Dollar Index futures are trading 101.505, down 0.087 or -0.09%. On Tuesday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.79, up $0.13 or +0.47%.

US Dollar Stable Despite Banking Worries

The U.S. dollar, known as a safe haven asset, is relatively stable after a surge overnight caused by renewed worries over the U.S. banking sector and economy, which affected risk sentiment. The dollar index increased by 0.5% overnight but has decreased by 0.76% for the month.

US Dollar Rises on Renewed Banking Fears

First Republic Bank’s shares plummeted by almost 50% after it reported a loss of over $100 billion in deposits during the quarter due to lost confidence in the banking sector. According to a source familiar with the matter, the bank faces limited and challenging options to turn its business around, including creating a “bad bank” or selling assets. The U.S. dollar’s increase is typical in response to negative news, even if it pertains to the United States. While some traders expect the dollar to remain elevated, concerns about small U.S. banks persist.

US Economic Data Dampens Sentiment

Fresh economic data, such as U.S. consumer confidence dropping to a nine-month low in April and the U.S. Richmond Fed manufacturing index sliding for the fourth consecutive month, weighed on market sentiment. The CME FedWatch tool indicated that markets are pricing in a 76% chance of a 25 basis point hike during the Federal Reserve meeting next week, down from 90% at the start of the week.

Fed to Release Silicon Valley Bank Review

On Friday, the Federal Reserve will publish its internal review of its supervision of Silicon Valley Bank, led by Fed Vice Chairman for Supervision Michael Barr, following the regional bank’s abrupt failure last month. The review will contain policy recommendations and confidential supervisory information that the Fed typically does not disclose to the public.

Major Currencies Trade in Tight Range

As for the index components, the euro was up 0.04% at $1.0976, but has moved away from the 10-month high it reached earlier this month. Sterling was trading at $1.2411, up 0.02% on the day. The Japanese yen inched up 0.01% to 133.69 per dollar, after gaining about 0.4% on Tuesday. While the traditional safe-haven gained 2.6% in March due to fears of a widespread banking crisis, it lost 0.6% for the month of April.

Technical Analysis

From a daily technical viewpoint, June US Dollar Index futures are trading inside a pivot zone at 101.450 – 101.695. The technicals appear to be in favor of a downside move.

The index is being supported this week by the 101.180 – 101.000 retracement zone. Resistance is the retracement zone at 101.450 – 101.695.

Counter-trend buyers will be trying to overcome 101.695, looking for a near-term breakout over 101.940. Trend-trading sellers will be trying to pressure the index through 101.450. Their mission is to take out 100.930.

For a look at all of today’s economic events, check out our economic calendar.