Article
The US Dollar Index (DXY) is showing signs of struggle, trading mildly down at 105.75 on Thursday, and facing challenges to gain further ground following its extended April rally. The Index weakened after the release of Gross Domestic Product (GDP) data from Q1, indicating a deceleration in economic growth. The Commerce Department reported a growth rate of 1.6%, significantly lower than the 2.4% rate expected by economists, marking the slowest pace in nearly two years. This news has put pressure on leading stock indices, with the Dow Jones industrial average falling 1.8%, the S&P 500 dropping 1.5%, and the Nasdaq declining 1.9%.
The US economy, despite remaining resilient, is expected to grow at a slower pace due to inflation and higher interest rates. The Federal Reserve (Fed), firm on its stance, appears in no rush to start easing, and market hawkish adjustments are providing a cushion to the USD. However, concerns about the wider trade deficit, moderation in consumer spending, and a slowdown in government spending have led to expectations that the Fed would not cut interest rates before September. The Labor market data reported during the European session provided some solace amidst the GDP concerns.
The cooler-than-expected growth reported by the Commerce Department also reflected a slower pace of inventory accumulation by businesses. Despite this, domestic demand remained solid, supported by business investment, and a recovering housing market. As such, losses experienced by the US Dollar Index may be limited, particularly as Personal Consumption Expenditures (PCE) data from March are expected to influence investors’ expectations. Additionally, the acceleration in inflation reinforced expectations that the Federal Reserve would not cut interest rates before September, which has implications for the trajectory of the US dollar.
In conclusion, the struggle of the US Dollar Index following the release of Q1 GDP data emphasizes the delicate balance between economic growth, inflation, and the stance of the Federal Reserve. With the significant implications for the global economy, investors and stakeholders keenly await the upcoming Personal Consumption Expenditures (PCE) data and any potential adjustments in the Fed’s stance.
