The US Dollar (USD) pared back earlier gains on Thursday following weaker-than-expected Jobless Claims and Housing data. Despite hawkish remarks from Fed officials, including Minneapolis Fed President Neel Kashkari, suggesting a prolonged period of steady rates, the USD struggled to maintain its upward momentum.
Market Drivers: Global Jitters and Mixed US Data
- China’s Currency Maneuvers: The People’s Bank of China (PBoC) set a weaker Yuan fixing, raising concerns about the health of the Chinese economy and adding to global uncertainty.
- New Zealand’s Economic Rebound: The NZD/USD pair rallied after New Zealand exited its technical recession, further contributing to the USD’s weakness.
- Asian Equities Slump: Concerns about the Chinese economy weighed on Asian stock markets, further dampening risk sentiment.
- Weak US Data: Disappointing Building Permits, Housing Starts, and Philadelphia Fed Manufacturing Survey data, along with a rise in Continuing Jobless Claims, painted a mixed picture of the US economic outlook.
Fed Rhetoric vs. Market Expectations:
While Fed officials maintain a hawkish stance, emphasizing the need for sustained high interest rates to combat inflation, market expectations are increasingly favoring rate cuts. This divergence in views is creating uncertainty and volatility in the currency markets.
Technical Analysis: DXY Loses Steam, Support Levels in Focus
The US Dollar Index (DXY) is losing steam after a brief rally, with the 55-day, 100-day, and 200-day SMAs clustered around 105.00 acting as a crucial support zone. A break below this area could trigger further declines towards 104.00.
On the upside, resistance levels to watch include 105.52, 105.88, and the year-to-date high of 106.51. However, the DXY’s ability to break above these levels will depend on the evolving economic landscape and the Fed’s policy decisions.