US Dollar holds steady as focus shifts to US GDP data this week


US Dollar struggles to gather strength but losses remain limited for now.
Key macroeconomic data releases from the United States this week could drive USD valuation.
US Dollar Index remains technically bearish in the near term.

The US Dollar (USD) failed to benefit from the stronger-than-expected S&P Global PMI surveys on Friday and the US Dollar Index closed the previous week virtually unchanged. At the beginning of the new week, the USD stays under modest selling pressure against its rivals. Ahead of the key macroeconomic data releases later in the week, including the first quarter Gross Domestic Product (GDP) and April Personal Consumption Expenditures (PCE) Price Index, investors could refrain from betting on further USD weakness.   

The US Dollar Index, which tracks the USD performance against a basket of six major currencies, stays calm slightly above 101.50 on Monday. 

Daily digest market movers: US Dollar extends sideways grind

The data from the US revealed on Friday that the economic activity in the private sector expanded at a strengthening pace in April with S&P Global Composite PMI rising to 53.5 (flash) from 52.3 in March.
S&P Global Manufacturing PMI improved to 50.4 in the same period from 49.2 and Services PMI rose to 53.7, surpassing analysts’ forecast of 51.5.
Commenting on the data, “the latest survey adds to signs that business activity has regained growth momentum after contracting over the seven months to January,” noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
US stock index trades modestly lower on Monday, suggesting that Wall Street’s main indexes could start the week on the back foot.
10-year US Treasury bond yield stays in negative territory but manages to hold above 3.5%.
The Federal Reserve Bank of Chicago announced that the National Activity Index remained unchanged at -0.19 in March. This reading came in weaker than the market expectation of -0.02 but failed to trigger a noticeable market reaction.
The Federal Reserve Bank of Dallas will publish the Texas Manufacturing Survey for April later in the session.
The CME Group FedWatch Tool shows that markets are currently pricing a nearly 90% probability of one more 25 basis points Federal Reserve (Fed) rate hike at the upcoming meeting.
The Fed will be in the blackout period until the policy decisions are announced next week, May 3.
The US Bureau of Economic Analysis will unveil the first estimate of first-quarter GDP growth on Thursday. The US economy is forecast to expand at an annualized rate of 2% in Q1, down from the 2.6% recorded in the last quarter of 2022.

Technical analysis: US Dollar Index struggles to turn bullish

The US Dollar Index trades slightly below the 20-day Simple Moving Average (SMA), currently located at 102.00. In case the DXY closes the day above that level, it could target 103.00 (static level, psychological level) and 103.40 (50-day SMA, 100-day SMA). 

Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart moves sideways slightly below 50, suggesting that buyers remain reluctant to bet on a steady recovery in the DXY. 

On the downside, 101.50 (static level) align as interim support ahead of 101.00/100.80 (psychological level, static level, multi-month low set on April 14). A daily close below that support area could open the door for an extended slide toward 100.00 (psychological level). 

How is US Dollar correlated with US stock markets?

Stock markets in the US are likely to turn bearish if the Federal Reserve goes into a tightening cycle to battle rising inflation. Higher interest rates will ramp up the cost of borrowing and weigh on business investment. In that scenario, investors are likely to refrain from taking on high-risk, high-return positions. As a result of risk aversion and tight monetary policy, the US Dollar Index (DXY) should rise while the broad S&P 500 Index declines, revealing an inverse correlation. 

During times of monetary loosening via lower interest rates and quantitative easing to ramp up economic activity, investors are likely to bet on assets that are expected to deliver higher returns, such as shares of technology companies. The Nasdaq Composite is a technology-heavy index and it is expected to outperform other major equity indexes in such a period. On the other hand, the US Dollar Index should turn bearish due to the rising money supply and the weakening safe-haven demand.

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