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MTrading Team • 2022-05-27

US dollar declines further ahead of Fed’s preferred version of inflation

US dollar declines further ahead of Fed’s preferred version of inflation

Markets turn jittery on Friday as fears of recession weighed on the sentiment ahead of the key US PCE Price Index data for April. The USD, however, fails to cheer its safe-haven appeal amid mixed clues and month-end consolidation of earlier gains.

EURUSD and GBPUSD managed to benefit from the USD weakness, as well as hawkish comments from ECB and BOE policymakers, while gold prices snapped two-day losses.

Brent oil pulls back from a two-month high on demand concerns while Antipodeans refresh a three-week high as China hints at further stimulus.

Cryptocurrencies fail to cheer the softer greenback amid shaky markets and pessimism surrounding governance.

Following is the list of major assets’ latest performances:

  • Brent oil snaps six-day uptrend around $117.60.
  • Gold snaps two-day downtrend to resume run-up towards weekly peak near $1,870.
  • USD Index remains on the back foot around five-week low, down 0.10% near 101.70 by the press time.
  • FTSE 100 prints mild losses but DAX and EUROSTOXX50 rise nearly 0.30% each.
  • Dow Jones and S&P 500 rose near 2.0% while Nasdaq rallied over 2.5% on Thursday.
  • BTCUSD and ETHUSD drops for the third consecutive day to $29,000 and $1,710 respectively.
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King Dollar losses it all!

Be it downbeat US GDP or the market’s growing concerns over no more 50 bps rate hikes past September, the US dollar had it all to justify the second weekly fall. Adding to pessimism could be downbeat US inflation expectations ahead of the Fed’s preferred inflation gauge.

While the US dollar weakness offered wings to gold and Antipodeans, speculations about China’s additional stimulus to ward off the recession risk offered extra strength to the prices of the precious metals and commodity-linked currencies.

Equities in the US helped Asia-Pacific shares to begin the day on a positive side before paring the gains on China-impressed concerns and growth fears, not to forget hopes of further monetary policy tightening.

It’s worth noting, however, that the downbeat prints of China’s Industrial Profits and OPEC+ rejection of more-than-planned output cut weighed on the oil prices.

Elsewhere, BTCUSD and ETHUSD extend the multi-week-old downward trajectory as traders leave the riskier assets. Also drowning the cryptocurrencies are fears of more regulations, especially after the latest slump in Terra’s Luna.

⏫ 🟢 Strong buy: USDCAD, USDRUB and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, brent oil, gold, BTCUSD

US PCE Price Index is the key

In contrast to the latest downbeat US data, today’s inflation numbers for April are likely to portray fears of surging prices and weigh on the market sentiment, despite being softer than the previous readings. However, the US dollar may not benefit from the same until the figures cross the softer forecasts. The same should help the US equities end the week on a positive side and underpin firmer closing of riskier assets except for cryptocurrencies.

It’s worth noting that the aforementioned US PCE Price Index may not be a welcome sign for bulls and hence traders should be cautious before the announcements.

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