US Dollar soft after PMI data and gloomy Fed's Beige Book
- The US Dollar Index trades near 99.50 on Wednesday after erasing earlier gains from Asian hours.
- Mixed PMI data and lack of clarity from Trump’s tariff stance keep USD under pressure.
- MACD prints a sell signal with resistance seen near 99.95 and 100.10; support rests at 98.94.
The US Dollar Index (DXY) failed to hold onto its early strength during Wednesday’s session and now drifts near the 99.50 region, reflecting continued uncertainty around US trade policy and softening business momentum. The Greenback's intraday pop toward 100.00 during Asian trading faded quickly after comments from Treasury Secretary Scott Bessent and renewed scrutiny of President Donald Trump’s policy stance. In addition, the Federal Reserve's Beige Book showed deteriorating economic conditions.
In economic data, the flash S&P Global Composite PMI for April fell to 51.2 from 53.5, suggesting slower overall business activity. While the Manufacturing PMI edged up to 50.7, the Services PMI slipped to 51.4 from 54.4 — highlighting waning demand in the services sector. S&P Global’s Chris Williamson noted that growth momentum is clearly weakening, while inflationary pressure remains, posing a challenge to the Federal Reserve’s (Fed) balancing act.
Daily digest market movers: US Dollar drifts lower after PMI data and tariff noise, Fed Beige Book
- Bessent reiterated that tariff negotiations are not imminent and will occur below the Trump-Xi level, adding to uncertainty.
- Despite a modest improvement in factory output, service sector weakness dragged the Composite PMI lower to 51.2.
- Analysts at Standard Chartered warned that tariff revenue would fall well short of funding proposed tax cuts, potentially adding pressure to US interest rates.
- President Trump’s mixed messages about tariffs — initially striking a conciliatory tone before reverting to ambiguity — have confused traders and investors alike.
- Wall Street’s S&P 500 gave up gains following Bessent’s remarks, while the USD trimmed losses with DXY stabilizing around 99.50.
- Speaking on Wednesday, Bessent clarified that President Trump has not offered to unilaterally cut tariffs on Chinese imports.
- He did, however, suggest that neither side views current tariff levels as viable long-term, hinting at a potential mutual reduction.
- Meanwhile, Trump stated he’d be “nice” to China if talks resume, offering lower tariffs as incentive. But the absence of a clear time frame for negotiations has left markets on edge.
- The Federal Reserve's April Beige Book indicated that overall economic activity remained largely unchanged. However, concerns about tariffs have deepened the economic outlook in multiple regions. Consumer spending showed mixed results, and the labor market appears to be easing, with many districts reporting either stagnant or slightly declining employment levels.
- Wage growth has slowed in certain areas, even though labor availability has improved. On inflation, businesses are experiencing higher input costs driven by tariffs, often passing these costs on to consumers as profit margins shrink.
- The report also noted that companies are bracing for heightened uncertainty, mainly due to the effects of tariffs and a slowdown in demand for services.
Technical analysis: DXY still capped below key averages
From a technical perspective, the US Dollar Index (DXY) maintains a bearish structure while trading near 99.56, registering a marginal daily loss of 0.08%. Price action remains confined between 98.86 and 99.67, reflecting market indecision ahead of upcoming macro data.
Momentum indicators are mixed. The Relative Strength Index (RSI) prints at 34.79, while the Awesome Oscillator at −3.45 is neutral. Meanwhile, the Moving Average Convergence Divergence (MACD) remains in selling territory, reinforcing the near-term downside bias. The Stochastic RSI Fast (3, 3, 14, 14) at 38.59 offers no strong directional cue.
Trend-following indicators continue to pressure the USD. The 10-day Exponential Moving Average (EMA) at 100.10 and Simple Moving Average (SMA) at 99.95 now act as immediate resistance. Further barriers stand at 100.10 and 101.26. On the downside, key support is located at 98.94. A break below this floor could pave the way for a deeper slide toward the mid-97.00 range.
While oversold signals hint at a potential technical bounce, persistent political and fiscal concerns may limit the DXY’s ability to mount a sustained recovery.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
