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The dollar is gradually sliding down, not finding support factors. The market picture is now developing in such a way that the US currency index may sink below the round value of 100 points, and not attract bulls near the monthly low of 101.60 points, as previously assumed. What is it connected with?
The main events that traders are guided by this week are the release of the Federal Reserve minutes and economic data. Neither each news item individually, nor a number of publications and indicators in aggregate, testify in favor of a reversal and a further rally of the dollar.
Risk appetite broadly stabilized on Thursday, and bond yields declined as no new hawkish surprises hit the markets. At the next meetings in the summer months, it is still planned to increase the rate by 50 bp both times to rein in inflation. But by September, perhaps there will be surprises. It remains to wait and listen carefully to the messages, probably obscured, from Fed officials.
Meanwhile, there has now been some softening of rates on even more aggressive moves by the Fed, providing some relief. Though sentiment remains fragile as inflation uncertainty continues to haunt investors.
In general, it has not become better or worse, the situation has not changed. However, things could get worse for the dollar as thoughts of a milder rate hike or a pause in policy tightening began to surface. So the economy should be easier. It is already clear that it is not drawing out, despite the fact that, as we understand, there are two rate hikes by 50 bp ahead.
Some investors seriously fear that an overly aggressive rate hike will trigger a recession, so it would be wiser to pause the tightening in the medium term. This way it will be possible to assess the impact of the central bank's hawkish attitude on economic growth.
On Thursday, the focus was on labor statistics, after last week there was a deterioration in the weekly index and data on GDP (second estimate).
The US Department of Commerce has worsened its quarterly report. US GDP in the first quarter fell by 1.5% on an annualized basis.
The first estimate suggested a reduction of 1.4%. At the same time, the markets were counting on an improvement in the indicator to 1.3%, but it did not happen.
US GDP growth rate for the 1st quarter
Initial jobless claims fell by 8,000 from the previous weekly figure to 210,000, better than expected. Analysts expected a decrease in value only to 215,000. The previous weekly result was 218,000.
The dollar index continues to trade without a clear direction, however, the trend towards weaker indicators is increasing. The bears were able to push through the level of 102.
The US currency is under pressure, so additional losses should not be ruled out. A breakthrough of 101.64 on May 24 could pave the way for a test of 101.03 in the short term.
The trend for the dollar has not changed, the current movement is certainly regarded as corrective, but there are nuances.
Economists at BBH see risks for the dollar to fall below 100 if it fails to hold the value of 101.80.
"Against the background of the fact that the markets perceived the Fed minutes as dovish. The key level to watch is at 101.80, as a clean breakthrough would call for a test of the April 21 low near 99.81.
However, economists believe that pessimism about the US economy is exaggerated and may soon decline. Markets are still looking one-sided, forgetting about the prospects for the eurozone, the UK and Japan. As soon as they pay attention to it, the dollar will rebound.
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