US Dollar extends slide to fresh weekly low as dovish Fed bets return

The US Dollar (USD) has started to weaken after having outperformed its rivals on Wednesday. The US Dollar Index, which tracks the USD's valuation against a basket of six major currencies, extended its daily slide following the macroeconomic data releases from the US and touched its weakest level in a week below 104.00.

Investors will be paying close attention to comments from Federal Reserve (Fed) officials ahead of Friday's May jobs report and the beginning of the Fed blackout period on Saturday.

Daily digest market movers: US Dollar loses value against its peers

• The economic activity in the US manufacturing sector continued to contract at an accelerating pace in May with the ISM Manufacturing PMI dropping to 46.9 from 47.1 in April. This reading came in worse than the market expectation of 47. More importantly, the inflation component of the PMI survey, Prices Paid Index, fell sharply to 44.2 from 53.2, compared to analysts' estimate of 52.
• The data published by Automatic Data Processing (ADP) showed on Thursday that private sector employment in the US rose by 278,000 in May. This reading surpassed the market expectation of 170,000 by a wide margin. Underlying details of the publication revealed that the annual wage inflation for 'job stayers' declined to 6.5% from 6.7% in April.
• The US Bureau of Labor Statistics revised the change in Unit Labor Costs for the first quarter lower to 4.2% from 6.3% in the advanced estimate.
• Other data from the US revealed that there were 232,000 initial claims for unemployment benefits in the week ending May 27, compared to 230,000 in the previous week.
• Philadelphia Fed President Patrick Harker noted on Wednesday that he was leaning toward a pause in rate hikes in June but noted that incoming data may change his mind.
• Federal Reserve Governor Philip Jefferson said that pausing rate hikes at the next FOMC meeting would offer time to analyse more data before making a decision about the extent of additional tightening. 
• According to the CME Group FedWatch Tool, the probability of one more 25 basis points (bps) Fed rate hike at the upcoming meeting declined below 30% from nearly 70% early Wednesday.
• The House of Representatives passed a bill to suspend the debt limit through January 1, 2025. US stock index futures trade modestly higher on Thursday.
• The US Bureau of Labor Statistics reported on Wednesday that the number of job openings on the last business day of April stood at 10.1 million, compared to 9.74 million in March. This reading came in higher than the market expectation of 9.37 million and provided a short-lasting boost to the USD.
• In an interview with the Financial Times, Cleveland Federal Reserve (Fed) Bank President Loretta Mester said that she doesn't necessarily see a compelling reason for pausing rate increases amid a "really embedded, stubborn inflationary pressure.”
• Consumer sentiment in the US weakened slightly in May with the Conference Board's (CB) Consumer Confidence Index edging lower to 102.3 from 103.7 in April (revised from 101.3). The Present Situation Index declined to 148.6 from 151.8 and the Consumer Expectations Index stayed virtually unchanged at 71.5. Finally, the one-year consumer inflation expectations ticked down to 6.1% in May from 6.2% in April.
• House prices in the US rose by 0.6% on a monthly basis in March, the monthly data published by the US Federal Housing Finance Agency showed on Tuesday. This reading followed February's increase of 0.7% (revised from 0.5%) and came in better than the market expectation of +0.2%.

Technical analysis: US Dollar Index turns bearish as key support fails

The recent action of the US Dollar Index (DXY) confirmed 104.50 as a strong technical resistance in the near term. 104.00 (Fibonacci 23.6% retracement of the November-February downtrend) aligns as a key pivot point for DXY and a daily close below that level could open the door for an extended slide toward 103.00, where the 100-day Simple Moving Average (SMA) and the 20-day SMA meet.

On the flip side, buyers could show interest in case DXY reclaims 104.00. In that scenario, 104.50 (static level) aligns as first hurdle before the index could target 105.00 (psychological level, static level) and 105.60 (200-day SMA, Fibonacci 38.2% retracement).

What is US Dollar Index (DXY)?

The US Dollar Index, also known as DXY or USDX, is a benchmark index that was established by the US Federal Reserve in 1973. DXY is widely used as a tool measuring the US Dollar (USD) value in global markets. The index is calculated by measuring the US Dollar’s performance against a basket of six foreign currencies, the Euro, the Japanese Yen (JPY), Swedish Krona (SEK), the British Pound (GBP), the Swiss Franc (CHF) and the Canadian Dollar (CAD).

With 57.6%, the Euro has the biggest weight in the index followed by the JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%). Hence, a sharp decline in the EUR/USD pair could help the US Dollar Index rise even if the US Dollar weakens against some of the other currencies in the basket.