As traders anticipate consumer sentiment data from the University of Michigan, the US Dollar (USD) looks set to record a small weekly loss. While the US Dollar Index (DXY) gained strength in the first half of the week, on Friday, it fell for a second consecutive day, trading around 100.62, jeopardizing the prior weekly upside.
The USD’s recent drop followed some data suggesting weakness around consumer spending and that inflation was easing, which has clearly dampened sentiment going into the weekend.
DXY Below 101 as Inflation and Retail Data Miss Expectations
On Thursday, the US Dollar fell after economic data hinted at slowing inflation and softer demand. The Producer Price Index (PPI) posted a decline in April by falling, so price pressures appear to be easing. Retail Sales posted a marginal increase of 0.1%, following a March increase of 1.5%.
These reports suggest that the Federal Reserve may have cut back on pressure to continue raising interest rates, which has diminished the need for the USD. Due to this action of following price pressures, the US Dollar Index, which tracks the USD against six other currencies, dipped below the critical 101.00 figure.
Focus Shifts to University of Michigan’s Consumer Sentiment Report
Traders are now awaiting the preliminary release of the University of Michigan Consumer Sentiment Index for May. The report is scheduled for release at 14:00 GMT and expected to increase only moderately to 53.4 versus April’s 52.2. This is expected to help the US Dollar stabilize before markets close for the week, as long as the data does not miss expectations.
In addition to the sentiment measure, traders will watch the 5-year inflation expectations, which are anticipated to remain steady at 4.4% as well. These results will affect short-term positioning, with the CME FedWatch Tool showing only an 8.2% chance of a rate cut in June.
Geopolitical Risks and Trump Tariff Shifts Add to Market Uncertainty
Political developments are also impacting the US Dollar. President Donald Trump’s inconsistent stance on tariffs has increased uncertainty around US trade policy. His suggestion that early trade deals were poorly planned has raised questions about future US economic direction and Greenback stability.
Elsewhere, geopolitical tensions continue to rise as diplomatic talks between Ukraine and Russia in Turkey yielded no results. While Trump declared no peace deal could be made without a meeting with Putin, markets are reacting to the increased complexities of global diplomacy, which could impact investor sentiment in the future.
DXY Facing Major Resistance and Support Levels
From a technical perspective, the US Dollar Index faces clear resistance at 101.90, a level that previously acted as support during late 2023. If bulls regain momentum, the 55-day SMA at 102.06 becomes the next target.
While the US Dollar may hold above 100.00 for now, traders remain cautious. Any major surprise in the Consumer Sentiment data or policy headlines from the Trump administration could shift momentum quickly.
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