The US Dollar fell back to flat in choppy trading on Thursday following the release of weaker-than-expected economic data. The easing Producer Price Index (PPI) and higher weekly jobless claims have raised questions about the Federal Reserve's steady-for-longer stance, causing volatility in the market.
Key Takeaways
The US Dollar fell back to flat following weaker-than-expected PPI and rising jobless claims.
The mixed economic data challenges the Fed's hawkish stance, raising questions about future rate cuts.
The US Dollar Index faces significant technical levels, with further easing possible if softer data continues. Economic Data Contradicts Fed's Hawkish Stance The US Dollar Index (DXY) dropped to 104.60, retreating from its attempt to break above 105.00 earlier in the day. Before the data release, the Greenback had rallied on the back of the Fed's recent meeting, where it maintained a hawkish outlook and projected just one rate cut for this year. However, the latest data painted a different picture. The PPI numbers showed a decline on all fronts, and jobless claims ticked up, suggesting a potential softening in the economy that could challenge the Fed's stance.
Key Economic Data Points
At 12:30 GMT, crucial economic indicators were released, highlighting a mixed economic outlook:
Weekly Jobless Claims:
Initial claims rose from 229,000 to 242,000.
Continuing claims increased from 1.790 million to 1.820 million.
Producer Price Index (PPI) for May:
Monthly headline PPI dropped from 0.5% to -0.2%.
Yearly headline PPI eased from 2.3% to 2.2%.
Monthly core PPI fell from 0.5% to 0.0%.
Yearly core PPI softened from 2.4% to 2.3%.
The soft PPI data and rising jobless claims indicate a cooling economy, which could prompt the Fed to reconsider its hawkish stance if this trend continues over the summer.
Market Reactions and Fed Projections
Federal Reserve Bank of New York President John Williams and US Treasury Secretary Janet Yellen are scheduled to discuss the economic outlook at the Economic Club of New York later today, which could provide further insights into the Fed's future actions.
Despite the mixed data, equities remained dispersed with the Nasdaq and S&P 500 in the green, while the Dow Jones Industrial Average traded in the red. The CME FedWatch Tool showed a 38.5% chance of the Fed maintaining the current interest rate level in September, with a 56.7% chance of a 25-basis-point rate cut and a slim 4.8% chance of a 50-basis-point cut.
The benchmark 10-year US Treasury Note slid to its lowest level in over a month, near 4.27%, reflecting investor concerns about the economic outlook.
Technical Analysis: US Dollar Index
The US Dollar Index faced significant volatility, driven by the disinflationary inflation report and the Fed's cloudy outlook. Any softer data points this summer could contribute to further easing of the Greenback. If US data continues to soften, the USD might weaken in the coming months.
Key Levels to Watch:
Upside:
105.52 (resistance level from April)
105.88 (resistance level from early May)
106.51 (year-to-date high from April 16)
Downside:
55-day SMA at 105.07
100-day and 200-day SMA forming a support layer near 104.48
Further support at 104.00
The US Dollar's trajectory will likely depend on future economic data and the Fed's response to evolving economic conditions. These key takeaways should help provide a concise overview of the current market situation for readers.
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