US Dollar strugguling as markets await GDP and employment data
- US Dollar Index drifts lower near 99.33 as doubts about US-led tariff reductions grow.
- China denies ongoing trade negotiations; US trade policy shifts viewed as long-term destabilizing.
- Technical indicators tilt bearish, with resistance levels at 99.43, 99.53 and 99.80.
The US Dollar (USD) weakens slightly on Monday as markets kick off a busy week, overshadowed by skepticism surrounding United States (US) trade policy. While US officials hinted at ongoing talks with Asian partners and “daily conversations” with China, Beijing reiterated it is not engaged in negotiations, stressing the lack of winners in a tariff war. This backdrop left the US Dollar Index (DXY) trading modestly lower, around the 99.33 mark at the time of writing.
Optimism that US trade policies might eventually reduce global tariffs is increasingly seen as misplaced. Analysts from Standard Chartered note that multilateralism continues to weaken under the Trump administration, with the World Trade Organization (WTO) sidelined and free trade agreements (FTAs) facing long and uncertain negotiation timelines. Adding to the pressure, the risk of prolonged uncertainty may weigh heavily on global growth prospects.
Daily digest market movers: Quiet markets
- US officials maintain that tariff discussions with Asian nations continue, but China denies any active trade negotiations.
- Standard Chartered warns that hopes for lower global tariffs are unrealistic; WTO mechanisms remain sidelined.
- Chinese e-retailers Temu and Shein raise prices by up to 300% for US consumers, highlighting tariff costs.
- Meanwhile, markets brace for crucial US economic data later this week, including the first-quarter GDP reading and April’s Nonfarm Payrolls (NFP) report.
- Investors will closely watch these releases for signals on whether the Federal Reserve (Fed) could proceed with a potential rate cut at its May 7 meeting.
Technical Analysis: DXY stuck below 100.00 as sellers pressure key support
The US Dollar Index (DXY) remains under bearish pressure, hovering near 99.33 after slipping 0.25% on the day. While the Relative Strength Index (RSI) at 35.28 remains neutral, the Moving Average Convergence Divergence (MACD) issues a sell signal, confirming the underlying bearish tone.
Short- and long-term moving averages reinforce the downtrend. The 10-day Exponential Moving Average (EMA) at 99.80 and the 10-day Simple Moving Average (SMA) at 99.43 signal sell, aligning with the 20, 100, and 200-day SMAs at 101.06, 105.70 and 104.51, respectively.
Resistance is seen at 99.43, 99.53, and 99.80. If the DXY breaks below its immediate support zone of 99.08, it could quickly retest the lower 98.00 handle. Without a meaningful positive catalyst, upside attempts are likely to meet heavy selling pressure ahead of the pivotal economic data later this week.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
