The U.S. Dollar Index (DXY) has slipped by nearly 0.54% over the past five sessions amid a slew of macroeconomic data. However, it may be premature to dismiss the strength in the U.S. Dollar just yet as central bank action heats up in major markets.
Don’t Dismiss the Greenback Just Yet
The recent weakness in the DXY comes after U.S. GDP (Gross Domestic Product) grew at a slower 1.6% pace in the first quarter, compared to an anticipation of a 2.4% increase. The slower economic growth coincided with a strong PCE (Personal Consumption Expenditures) price index print of 3.4%. While the data readings further weaken any hopes for interest rate cuts from the Fed anytime soon, concerns over the U.S. economy’s outlook are beginning to increase.
Despite this weakness, the USD is displaying strength against the Japanese Yen (FX:USD-JPY). At over 156 against the dollar, the Yen is hovering near its lowest level in nearly 34 years after the Bank of Japan maintained interest rates. The continued slump in the Yen comes as the BOJ did not hint at any actions to stem the weakness in the Yen today.
At the other end of the spectrum, the Argentine Peso has rallied by nearly 25% against the dollar over the last three months as Argentina’s government resorts to austerity measures to rein in inflation. Meanwhile, the European Central Bank (ECB) looks set to deliver a rate cut at its upcoming meeting on June 6. But the U.S. Fed embarking on a similar path at its meeting on May 1 seems highly unlikely. So far this year, traders have gradually dialed down rate cut hopes from the Fed from May to June to September and this week, to December.
What Is the Future of DXY?
The Fed’s hawkish stance could add more strength to the dollar over the coming months. This, in turn, could potentially push the DXY over levels last seen in October.
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