The dollar is under pressure due to dismal economic data from the United States.  Can the GBP and EUR keep going?

The US dollar is losing ground due to negative economic news, and traders are beginning to believe that the Federal Reserve may adopt a dovish stance in the coming months.  The US Dollar Index (DXY) is trading at 98.58 as of Wednesday.  It is struggling to maintain its upward pace after retail sales declined by 0.9% in May and industrial production dipped for the second time in three months.

As the economy slows, speculation about a rate cut grows

Retail sales, a reliable indicator of how much individuals spend, were significantly lower than projected.   According to Reuters, the reduction raises concerns about consumers’ ability to cope with high inflation and rising borrowing costs. At the same time, industrial output declined by 0.2%, wiping off the small gains gained in April.  This demonstrates that the United States economy is generally weak.

As a result, market participants now believe there is an 80% chance that the Fed will drop interest rates in September, with another cut likely in October.   The CME FedWatch tool confirms what major investment banks like Morgan Stanley and Wells Fargo have been saying: the market’s expectations have shifted.

Technical Setups Impact the Dollar’s Future

The DXY is struggling to break above 98.87, where the 200-period EMA and a negative trendline meet.   The index’s inability to break higher indicates that the bullish impetus is weakening. If the price remains below 98.40, it could fall considerably lower, perhaps to 98.03 or perhaps 97.69.

At the same time, both GBP/USD and EUR/USD are showing early signs of recovery.  GBP/USD has recovered from $1.3414 and is currently hunting for resistance around $1.3475.   EUR/USD is also near to $1.1509, but technical barriers prevent it from rising further.

Tensions between countries provide temporary assistance

Tensions in the Middle East, particularly between the United States and Iran, have increased demand for safe-haven assets, adding to the complexity.   Former President Donald Trump’s latest social media tweet increased people’s fear of global events, temporarily strengthening the dollar.  

As the market gets increasingly uncertain, traders should monitor technical levels and global developments.   The destiny of the dollar will be determined by the interplay of economic statistics and geopolitical conflicts.

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