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US Dollar Uptrend on Thin Ice as Fed Takes Center Stage This Week

Published 29/04/2024, 12:29
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  • Fed Chair Powell's remarks after the May 1st decision will shape monetary policy expectations going forward.
  • Key data dump this week: PMI, unemployment, and jobs data will shed light on economic strength.
  • Meanwhile, the US dollar remains flat despite upcoming volatility, with support at 105.4 and resistance at 106.
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  • The Fed takes center stage this week, with markets eagerly awaiting Jerome Powell's remarks following the interest rate decision on May 1st. While initial expectations for three rate cuts this year have declined, the Fed's message will be crucial in determining the future trajectory of monetary policy.

    Beyond the US Central Bank, a raft of economic data will provide further clues on the economy's strength. For this, market participants will be eying the PMI, unemployment and Employment data due later in the week.

    Recent data painted a picture of a resilient economy, but growth figures are flashing caution signs. Last week's lower-than-expected GDP reading raised concerns about a potential economic slowdown. Meanwhile, core PCE came in higher, indicating persistent inflation. Slowing growth and stubborn inflation have fueled fears of stagflation.

    US Dollar in Focus Ahead of Key Data, Fed

    Despite the upcoming data deluge, the US dollar began the week maintaining the sideways trend. After a mid-month surge towards 106, DXY has settled into a range with an average floor of 105.6.

    Interestingly, the dollar started the week with a bearish bias against other major currencies despite the potential market volatility from this week's data releases. Resistance has remained strong at the 106 level for the past three weeks, while support holds at 105.4.

    DXY Price Chart

    The Federal Reserve meeting looms large, with all eyes on Chair Jerome Powell's guidance for the rest of the year. While the Dollar Index (DXY) remains flat, recent economic data has complicated the situation further, making Powell's comments even more crucial.

    A dovish stance from Powell could trigger a significant decline in the DXY. The index might breach the 105.4 support level, shifting its short-term trend downward and potentially reaching 104.3. This scenario would be bullish for riskier assets like stocks and cryptocurrencies. Considering Friday's employment data, Powell is likely to adopt a cautious tone.

    Market expectations for Friday's nonfarm payrolls data are at 243,000, lower than last month. However, a higher-than-expected figure could strengthen the dollar. Furthermore, the Fed's hawkish stance on interest rates compared to other central banks planning rate cuts in 2024 could keep the dollar on an upward trajectory.

    Overall, strong US economic data could see the DXY establish a base around 106 and potentially climb further towards 107. Conversely, dovish signals from Powell coupled with weaker data could trigger a dollar decline, supporting risk assets.

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    Disclaimer: This content, which is prepared purely for educational purposes, cannot be considered as investment advice. We also do not provide investment advisory services.

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