Michigan Consumer Sentiment Index Preview: Modest improvement not enough to boost the mood

The Michigan Consumer Sentiment Index is foreseen at 63.0 in May.
Easing inflation in the United States suggests the country could avoid a hard landing.
DXY may extend its corrective advance but remains far from bullish.

Valeria Bednarik FXStreet

On Friday, May 12, the United States (US) will release the preliminary estimate of the May Michigan Consumer Sentiment Index. The key consumer sentiment gauge is expected to have declined modestly, from 63.5 in April to 63.

Where is the US economy standing?

The sentiment report will come out after multiple US first-tier figures that confirmed the Federal Reserve’s (Fed) suggested next steps, so the impact of the release on the US Dollar is likely to be limited.

On the one hand, the Fed hiked its benchmark rate by 25 basis points (bps) and announced future monetary policy decisions would be taken meeting-by-meeting based on data. Chairman Jerome Powell, however, hinted at a potential pause as the unfolding banking crisis forced policymakers into a more dovish stance.

Following the decision, market players rushed to price in a pause in both June and July, and a potential rate cut in September. Fed officials tried to cool down the latter, but speculative interest ignored them.

Meanwhile, the Consumer Price Index (CPI) rose by 4.9% YoY in April, slightly below the 5% expected, while the April Producer Price Index (PPI) was up by 2.3% YoY, also easing from the March figure. Softer-than-anticipated inflation-related figures boosted speculation the Fed will stand pat in its upcoming meetings, which translated into diminishing chances of a hard landing for the economy.

Finally, the local economy grew at an annualized pace of 1.1% in the first quarter of the year, according to preliminary estimates, slowing from 2.6% in the last quarter of 2022.

Generally speaking, those seem to be good news, although it may take some time until the effects of decreasing price pressures reach consumers. A pickup in consumer confidence is possible, but the most likely scenario is just a mild improvement.

Possible USD reactions to the news

Still, and given financial markets are in a risk aversion mood, the news could do little to boost market sentiment. The US Dollar is up amid collapsing equities, still lacking self-strength. The rally could continue if a dismal Michigan report exacerbates the negative mood on Friday. At the same time, it seems unlikely that an upbeat report could be enough to change the ruling sentiment.

The US Dollar Index (DXY) currently hovers just above 102.10, not far below the May monthly high of 102.40. Technical readings in the daily chart suggest the recovery may continue, although the index remains far from bullish. It is currently breaking above a flat 20 Simple Moving Average (SMA) but remains far below the longer ones. Technical indicators, in the meantime, picked up modestly, currently advancing within neutral levels. More relevantly, the DXY is not far above its yearly low at 100.78.

Failure to hold above the 102.00 level should hint at the index resuming its bearish trend once the dust settles. A break through 102.40, on the other hand, may result in a continued recovery, initially towards 103.00 and later towards the 103.60 region.

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

AUD/USD hangs near three-week low, above 0.7100 ahead of Fed decision

AUD/USD retains its negative bias for the third straight day, trading around 0.7120 and close to a three-week low during the Asian session on Wednesday. The US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high. Furthermore, escalating Middle East tensions benefit the safe-haven buck and weigh on the risk-sensitive Aussie.

USD/JPY remains below 155.50 as bulls await the key Fed decision

USD/JPY climbs to a fresh one-week high during the Asian session on Wednesday amid a bullish US Dollar. Oil-driven inflation fears, along with the anticipated Fed rate hike, continue to support surging US bond yields. Moreover, rising US-Iran tensions underpin the USD's reserve currency status. Spot prices, however, remain below the mid-155.00s as bulls seem hesitant ahead of the Fed decision later today and the BoJ meeting, starting on Thursday.

Gold struggles below $4,300, near one-month low as Fed decision looms

Gold remains depressed below $4,300 during the Asian session on Wednesday as traders look to the crucial Fed decision for a fresh impetus. Meanwhile, a surge in US bond yields, bolstered by oil-driven inflation fears, continues to weigh on the non-yielding bullion. Furthermore, escalating Middle East tensions underpin the safe-haven US Dollar and contribute to a weaker tone around the XAU/USD.

Ethereum continues to attract capital despite impending rate hike and Clarity Act failure

Ethereum declined to $2,400 on Tuesday after the Clarity Act failed to progress in the Senate. Despite that and the market's near certainty of an interest rate hike at the next Federal Reserve (Fed) meeting, the top altcoin has continued to attract fresh capital. Ethereum buyers have been dominating sellers over the past few days.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.