The US Dollar (USD) displayed resilience leading up to the conclusion of the week’s economic data, exhibiting a degree of volatility following the preliminary release of US Gross Domestic Product (GDP) data for the first quarter. Initially, the USD surged in response to robust Personal Consumption Expenditure (PCE) figures from the GDP report, leading to speculation that interest rate cuts would be deferred even further, with probabilities for December momentarily surpassing those for September. However, as market sentiment stabilized, the consensus emerged that the data suggested a stagflationary scenario, prompting equities to climb while weighing on the USD as the possibility of rate cuts in 2024 remained viable, dispelling earlier rumors of a potential rate hike.
In the realm of economic data, the US Federal Reserve’s preferred inflation metric, the Personal Consumption Expenditure (PCE) Price Index, was released. While the PCE data did not yield any significant surprises, Personal Income and Spending figures indicated ongoing consumer activity, suggesting that inflationary pressures are unlikely to dissipate swiftly. This outlook for sustained inflation supports the notion of a prolonged steady rate trajectory, which in turn underpins the strength of the US Dollar.
In the market movers’ digest:
Overnight, the Bank of Japan (BoJ) maintained its interest rates, prompting USD/JPY to touch 156.80.
European trading hours witnessed volatile fluctuations in the USD/JPY pair, with the pair briefly dipping to 155.00 before swiftly rebounding to 156.75, sparking speculation regarding potential interventions by the Japanese Ministry of Finance or the Bank of Japan.
At 12:30 GMT, March’s Personal Consumption Expenditures (PCE) data was released, with both monthly headline and core PCE figures holding steady at 0.3%, while yearly headline PCE rose from 2.5% to 2.7%, and yearly core PCE remained unchanged at 2.8%. Monthly Personal Income increased to 0.5% from 0.3%, while Monthly Personal Spending remained unchanged at 0.8%.
At 14:00 GMT, the final University of Michigan Consumer Sentiment data for April was unveiled, with Consumer Sentiment declining from 77.9 to 77.2, while five-year consumer inflation expectations remained stable at 3%.
Equities across Asia, Europe, and US futures all recorded gains following the Bank of Japan’s rate decision.
The CME Fedwatch Tool indicates an 88.5% likelihood of no change to the Federal Reserve’s feds fund rate in June, with rate cut probabilities for July deemed improbable, while September presents a 44.6% chance of rates being lower. The 10-year US Treasury Note hovers around 4.68%, maintaining its position.
Technical Analysis of the US Dollar Index (DXY) reveals a bearish trend, with key levels to watch. Recovery above 105.88, a pivotal level since March 2023, is necessary to target the April 16 high at 106.52. Resistance levels lie at 107.00 and 107.35. Conversely, support levels at 105.12 and 104.60 are critical, followed by the 55-day and 200-day Simple Moving Averages (SMAs) at 104.40 and 104.10, respectively. Failure to hold these levels may lead to a test of the 100-day SMA near 103.70.
