US Dollar ticks higher after weak consumer sentiment offsets broader data disappointment
- University of Michigan consumer sentiment falls to 50.8, a fresh 2025 low.
- Inflation expectations rise, with 1-year forecast jumping to 7.3%.
- DXY edges toward 101.00 amid Fed easing expectations and tariff uncertainty.
- Market sees first rate cut in September, with more expected through 2026.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is trading slightly higher at around 101.00 on Friday after a softer-than-expected University of Michigan Consumer Sentiment survey added to a week of mixed US economic data. Household confidence dropped, while inflation expectations surged, painting a murky outlook for the US economy. US President Trump’s unpredictable tariff plans and vague trade policy continue to weigh on sentiment. Still, the DXY is holding onto weekly gains, as traders digest fading risk appetite and brace for further Federal Reserve (Fed) signals.
Daily digest market movers: Not much market moving
- US consumer sentiment declined to 50.8 in May, down from 52.2 in April, missing expectations and marking the lowest reading since June 2022.
- The Current Conditions gauge eased to 57.6 from 59.8, while Consumer Expectations fell to 46.5 from 47.3.
- Inflation expectations moved higher: 1-year rose to 7.3% from 6.5%, and 5-year to 4.6% from 4.4%, signaling heightened price concern.
- Thursday’s US data showed April PPI declined unexpectedly and Retail Sales rose only 0.1% after March’s upward revision to 1.5%.
- President Trump announced that the US will soon set unilateral tariffs on many countries, raising concerns about future trade flows.
- Market pricing suggests a 51.1% chance of a rate cut by September and sees multiple cuts through 2026, with no hikes expected.
US Dollar Index technical analysis: Going nowhere
The US Dollar Index is trading near 101.00 with gains, near the top of its intraday range between 100.52 and 101.14. The Relative Strength Index (RSI) remains in the 50s, suggesting neutral momentum. The Moving Average Convergence Divergence (MACD) points to a mild bullish crossover, while the Average Directional Index (14) in the 30s indicates weak trend strength. The Ultimate Oscillator trades in the 60s, and Bull Bear Power hovers near zero, reinforcing the indecisive tone. The 20-day SMA provides a short-term buy signal, but the 100-day and 200-day SMAs continue to flash bearish. Support levels are seen at 100.93, 100.67, and 100.61, while resistance is at 101.16, 101.75, and 101.82. Overall, the DXY presents a neutral outlook with a slight upward bias.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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