• US Dollar struggles to gather strength but losses remain limited for now.
• Key macroeconomic data releases from the United States this week could drive USD valuation.
• US Dollar Index remains technically bearish in the near term.

The US Dollar (USD) failed to benefit from the stronger-than-expected S&P Global PMI surveys on Friday and the US Dollar Index closed the previous week virtually unchanged. At the beginning of the new week, the USD stays under modest selling pressure against its rivals. Ahead of the key macroeconomic data releases later in the week, including the first quarter Gross Domestic Product (GDP) and April Personal Consumption Expenditures (PCE) Price Index, investors could refrain from betting on further USD weakness.   

The US Dollar Index, which tracks the USD performance against a basket of six major currencies, stays calm slightly above 101.50 on Monday. 

Daily digest market movers: US Dollar’s subdued action continues on Monday

• The data from the US revealed on Friday that the economic activity in the private sector expanded at a strengthening pace in April with S&P Global Composite PMI rising to 53.5 (flash) from 52.3 in March.
• S&P Global Manufacturing PMI improved to 50.4 in the same period from 49.2 and Services PMI rose to 53.7, surpassing analysts' forecast of 51.5.
• Commenting on the data, "the latest survey adds to signs that business activity has regained growth momentum after contracting over the seven months to January," noted Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
• US stock index trades modestly lower on Monday, suggesting that Wall Street’s main indexes could start the week on the back foot.
• 10-year US Treasury bond yield stays in negative territory but manages to hold above 3.5%.
• The Federal Reserve Bank of Chicago will release the National Activity Index for March on Monday. The Federal Reserve Bank of Dallas will publish the Texas Manufacturing Survey for April as well.
• The CME Group FedWatch Tool shows that markets are currently pricing a nearly 90% probability of one more 25 basis points Federal Reserve (Fed) rate hike at the upcoming meeting.
• The Fed will be in the blackout period until the policy decisions are announced next week, May 3.
• The US Bureau of Economic Analysis will unveil the first estimate of first-quarter GDP growth on Thursday. The US economy is forecast to expand at an annualized rate of 2% in Q1, down from the 2.6% recorded in the last quarter of 2022.

Technical analysis: US Dollar Index remains technically bearish

The US Dollar Index trades slightly below the 20-day Simple Moving Average (SMA), currently located at 102.00. In case the DXY closes the day above that level, it could target 103.00 (static level, psychological level) and 103.40 (50-day SMA, 100-day SMA). 

Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart moves sideways slightly below 50, suggesting that buyers remain reluctant to bet on a steady recovery in the DXY. 

On the downside, 101.50 (static level) align as interim support ahead of 101.00/100.80 (psychological level, static level, multi-month low set on April 14). A daily close below that support area could open the door for an extended slide toward 100.00 (psychological level). 

How does Fed’s policy impact US Dollar?

The US Federal Reserve (Fed) has two mandates: maximum employment and price stability. The Fed uses interest rates as the primary tool to reach its goals but has to find the right balance. If the Fed is concerned about inflation, it tightens its policy by raising the interest rate to increase the cost of borrowing and encourage saving. In that scenario, the US Dollar (USD) is likely to gain value due to decreasing money supply. On the other hand, the Fed could decide to loosen its policy via rate cuts if it’s concerned about a rising unemployment rate due to a slowdown in economic activity. Lower interest rates are likely to lead to a growth in investment and allow companies to hire more people. In that case, the USD is expected to lose value.

The Fed also uses quantitative tightening (QT) or quantitative easing (QE) to adjust the size of its balance sheet and steer the economy in the desired direction. QE refers to the Fed buying assets, such as government bonds, in the open market to spur growth and QT is exactly the opposite. QE is widely seen as a USD-negative central bank policy action and vice versa.