US Dollar (DXY): Strong Recovery in China’s Economy Boosts Global Markets

Highlights

• US Dollar Index down 0.05% as Federal Reserve signals interest rate hike in May
• China’s Q1 GDP grew 4.5% YoY, exceeding expectations
• Release of UK employment data could cause some turbulence in the Pound

Overview

On Tuesday, the dollar retreated after an overnight rally, fueled by robust U.S. economic data that reinforced the expectation of another interest rate hike by the Federal Reserve in May. Meanwhile, China’s economic revival accelerated in the first quarter.

At 05:18 GMT, June US Dollar Index futures are trading 101.750, down 0.046 or -0.05%. On Monday, the Invesco DB US Dollar Index Bullish Fund ETF (UUP) settled at $27.81, up $0.13 or +0.47%.

China’s Q1 GDP Beats Expectations, Retail Sales Surge, and Factory Output Grows

China’s first-quarter GDP grew by 4.5% year-on-year, surpassing analyst predictions of 4% growth rate due to the lifting of COVID-19 restrictions, leading to a recovery in the world’s second-largest economy. Retail sales had surged to a near two-year high, growing at a rate of 10.6%, exceeding expectations, and factory output growth had also accelerated, albeit slightly below predictions. The momentum of post-pandemic recovery remained strong, and the offshore Chinese yuan decreased slightly by 0.04%, settling at $6.8783 per dollar.

US Homebuilder Confidence Rises, NY Manufacturing Shows Growth

In the US, confidence among single-family homebuilders continued to improve for the fourth consecutive month in April. While manufacturing activity in New York State increased for the first time in five months. The markets are currently pricing in a 91% probability of the Federal Reserve increasing interest rates by 25 basis points at its upcoming meeting in May, but traders anticipate rate cuts towards the end of the year. The strength or weakness of economic data can affect the dollar’s sensitivity as the Federal Reserve likely approaches the end of its tightening cycle.

British Pound Rises Slightly as Wage Data is Monitored by Policymakers

The Euro edged up by 0.04% to $1.09320, stepping back from its one-year high of $1.10755. Traders expect the central bank of the region to maintain its monetary tightening course. The Japanese Yen weakened slightly to 134.52 per dollar, hovering close to the one-month peak of 134.57 it reached on Monday.

The British Pound was trading at $1.2381, up 0.06% for the day. British policy makers are watching wage data closely for further confirmation that growth in private sector income is slowing down. The Bank of England has cited slower private sector wages as a factor contributing to its expectation of a potential drop in core inflation back to its target. The release of employment data could cause some turbulence in the pound. If the report shows that the labor market is not cooling.

Technical Analysis

From a technical view, according to the daily chart, June US Dollar Index futures are trading above the pivot at $101.450, while the RSI indicator is neutral. The technicals appear to be in favor of an upside move and a potential test of that $102.310 price. If the price does not reach its peak and instead has a downward trend, we may witness a decline toward the $100.420 – 100.345 region.

Resistance and Support Lines: 

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