US Dollar Weakened by Soft Services Sector Data
The US dollar continued its downward trend against major currencies on Wednesday, influenced by disappointing services sector data. Investors, concerned about the possibility of fewer interest rate cuts from the Federal Reserve, found some relief in the subdued performance of the services industry.
At 14:37 GMT, the U.S. Dollar Index (DXY) is trading 104.469, down 0.583 or -0.27%.
Services Sector Slows
The US services industry experienced a slowdown in growth in March, with the Institute for Supply Management (ISM) reporting a drop in its non-manufacturing Purchasing Managers’ Index (PMI) to 51.4 from 52.6 in February. This marks the second consecutive monthly decline, though it still indicates expansion, albeit at a moderate pace.
Improved Inflation Outlook
A positive aspect of the data was the decrease in the measure of prices paid by businesses for inputs to a four-year low. This suggests a favorable outlook for inflation, particularly as services play a significant role in driving inflation through higher wages.
Trader Response
Despite news of 10-year Treasury yields reaching a 2024 high following better-than-expected ADP jobs data, traders remained focused on the implications of the softer services sector data. The decline in prices paid for inputs and the decrease in new orders received by services businesses contributed to a bearish sentiment for the dollar.
Fed’s Outlook
Atlanta Fed President Raphael Bostic expressed caution, suggesting that the Federal Reserve should refrain from rate cuts until the end of the year. Bostic’s remarks align with his view of reducing borrowing costs only once in 2024, highlighting concerns over inflation and the need for sustained GDP growth and employment.
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The short-term outlook for the US dollar appears bearish, with the Federal Reserve likely to maintain a cautious approach toward interest rate cuts. Traders anticipate further clarification on the Fed’s monetary policy stance, particularly regarding the expected number of rate cuts in 2024.
In summary, the US dollar weakened against major currencies due to disappointing services sector data and cautious remarks from Federal Reserve officials, signaling a bearish sentiment in the near term.
Technical Analysis
The U.S. Dollar Index (DXY) is lower on Wednesday. The chart pattern suggests a double-top may be forming. Resistance is now the Aprl 2 top at 105.100 and yesterday’s high at 104.976.
On the downside, the daily chart shows the best support is the uptrending 50-day moving at 103.859 and the 200-day moving average at 103.779.
