The US Dollar (USD) remains steady as investors continue to avoid risk-sensitive assets, while crude oil prices plummet due to the USD’s renewed strength and growing concerns over a worsening demand outlook. As market participants grapple with signs of sticky inflation in major economies, central banks may opt for tight monetary policies that could come at the cost of a slowdown in activity.
The US Dollar Index, which tracks the USD’s performance against a basket of six major currencies, remains within a tight range near 102.00 on Thursday, with a positive weekly outlook looking to snap a five-week losing streak. On Thursday, the US Department of Labor is set to release the weekly Initial Jobless Claims data, which is expected to rise to 240,000.
Additionally, the US economic docket will feature March’s Existing Home Sales and the Federal Reserve Bank of Philadelphia’s Manufacturing Survey. Stronger-than-expected Consumer Price Index (CPI) data from the UK has renewed fears over sticky global inflation, triggering a rally in global bond yields.
On Wednesday, the benchmark 10-year US Treasury bond yield rose to its highest level in nearly a month, climbing above 3.6% before settling slightly below that level on Thursday. This rise in bond yields has put pressure on crude oil prices, causing the West Texas Intermediate to fall more than 2% and trade at its lowest level in over two weeks, below $78.
Late Wednesday, the Federal Reserve’s Beige Book revealed that manufacturing activity was widely reported as flat or down, despite improvements in supply chains. The publication further read that “Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing.”
Chicago Federal Reserve Bank President Austan Goolsbee expressed concern over the financial sector following the failure of two large regional Fed banks last month, stating that he was waiting to see whether there were other credit shoes to drop. Meanwhile, NY Fed President John Williams reiterated that it was too early to assess the economic impact of tighter credit conditions, and that they need to continue to use policy tools to restore price stability.
St. Louis Federal Reserve President James Bullard noted that interest rates will need to continue to rise in the absence of clear progress on inflation, and that he still sees the “adequately restrictive policy rate” in the 5.50%-5.75% range, biased to hold rates there for longer until inflation is contained.
In March, Housing Starts in the US declined by 0.8% on a monthly basis, following February’s increase of 7.3% (revised from 9.8%). Building Permits also decreased by 8.8%, compared to the market expectation of +1.45%.
Recent data from China showed that the world’s second-largest economy expanded by an annualized rate of 4.5% in the first quarter, surpassing the 2.9% growth recorded in the last quarter of 2022 and analysts’ estimate of 4%. Industrial Production expanded by 3.9%, and Retail Sales rose by 10.6% on a yearly basis, compared to analysts’ estimate of 7.4%.
Technical analysis suggests that the US Dollar Index is currently trading slightly below the 20-day Simple Moving Average (SMA), located at 102.20. Should the DXY close the day above that level, it could target 103.00 (static level, psychological level) and 103.50 (50-day SMA, 100-day SMA).
Table 1: US Economic Indicators
|Weekly Initial Jobless Claims data
|March Existing Home Sales
|Federal Reserve Bank of Philadelphia’s Survey
Table 2: Chinese Economic Indicators
|Q1 2023 GDP growth
Table 3: USD Performance Against Major Currencies
|US Dollar Index
|Positive weekly outlook after 5-week losing streak
|10-year US Treasury bond yield
|Slightly below 3.6%
|Climbed to its highest level in nearly a month on Wednesday
|WTI crude oil prices
|Dropped more than 2% on Wednesday
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