US Dollar fails to gather recovery momentum after disappointing US data

The US Dollar (USD) struggles to keep its footing following Wednesday’s meager rebound. Although the currency managed to outperform its rivals during the European trading hours amid risk aversion, it faced renewed selling pressure following the disappointing macroeconomic data releases from the United States (US).

The US Dollar Index, which tracks the USD performance against a basket of six major currencies, stays below 102.00 after having tested that level twice in the last two trading days. On a weekly basis, the index clings to modest gains, looking to snap a five-week losing streak.

Daily digest market movers: US Dollar Index loses traction on weak US data

• The US Department of Labor's weekly publication revealed on Thursday that there were 245,000 Initial Jobless Claims in the week ending April 15, worse than the market forecast of 240,000. 
• Federal Reserve Bank of Philadelphia’s Manufacturing Index dropped to -31.3 in April from -23.2 in March.
•  "The prices paid index declined for the second consecutive month, falling 15 points to 8.2," the Philadelphia Fed's publication read. "The current prices received index fell 11 points to -3.3, its third consecutive decline and first negative reading since May 2020."
• Existing Home Sales in the US declined by 2.4% in March following February's 13.8% increase.
• Wall Street's main indexes opened in negative territory on Thursday with the tech-heavy Nasdaq Composite suffering heavy losses. 
• Stronger-than-expected Consumer Price Index (CPI) data from the UK revived fears over sticky global inflation and triggered a rally in global bond yields early Wednesday.
• The benchmark 10-year US Treasury bond yield turned north early Wednesday and climbed to its highest level in nearly a month above 3.6% before going into a consolidation phase slightly below that level on Thursday.
• Crude oil prices fell sharply on Wednesday and the barrel of West Texas Intermediate lost more than 2%. WTI stays under selling pressure and trades at its lowest level in over two weeks below $78.
• The Federal Reserve’s Beige Book showed late Wednesday that manufacturing activity was widely reported as flat or down even as supply chains continued to improve. “Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing,” the publication further read.
• “After the failure of two large regional Fed banks last month roiled the financial sector, I’m waiting to see whether there are other credit shoes to drop,” said Chicago Federal Reserve Bank President Austan Goolsbee in an interview with American Public Media's Marketplace on Wednesday.
• NY Fed President John Williams reiterated that it was too early to assess the economic impact of tighter credit conditions and added that they need to continue to use policy tools to restore price stability.  
• St. Louis Federal Reserve President James Bullard told Reuters on Tuesday that interest rates will need to continue to rise in the absence of clear progress on inflation. Bullard further noted that he is still seeing the "adequately restrictive policy rate" at 5.50%-5.75% range and added that is biased to hold rates there for longer until inflation is contained.
• Housing Starts in the US declined by 0.8% on a monthly basis in March following February's increase of 7.3% (revised from 9.8%). In the same period, Building Permits decreased by 8.8%, compared to the market expectation of +1.45%. 
• The data from China showed on Tuesday that the world’s second-largest economy expanded by an annualized rate of 4.5% in the first quarter, much stronger than the 2.9% growth recorded in the last quarter of 2022. This reading also came in better than analysts' estimate for an expansion of 4%. Other data revealed that Industrial Production expanded by 3.9% and Retail Sales rose by 10.6% on a yearly basis, against analysts' estimate of 7.4%.
• Richmond Fed President Thomas Barkin said on Monday that he wants to see more evidence of inflation settling back to target.

Technical analysis: US Dollar Index retreats toward support area

The US Dollar Index trades below the 20-day Simple Moving Average (SMA), currently located at 102.10. In case the DXY closes the day above that level, it could target 103.00 (static level, psychological level) and 103.50 (50-day SMA, 100-day SMA). 

Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart moves sideways near 50, suggesting that sellers refrain from committing to further USD weakness. 

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.