The US dollar index skyrocketed about 0.6% in trading in the New York session on Tuesday (April 25). Market concerns over the future of the global economy have triggered risk-off actions.
Those actions tend to be more favorable for the safe-haven currency than other risk-sensitive assets. The two latest United States housing data packages released tonight featured better-than-expected performance.
However, the market highlighted two other data that showed a tendency to deteriorate significantly in consumption and production activities.
Data from The Conference Board showed the U.S. consumer confidence index plummeted to a nine-month low of 101.3. That was in an April 2023 survey result.
The Stock Indexes in America Fell
In fact, market participants previously expected the data to remain resilient at the level of 104.0. The Manufacturing Index released by the Richmond Fed also subsided.
The figure declined for four straight months to reach -10 in April. Both data triggered another risk-off action in financial markets. Meanwhile, the American stock indexes fell.
Besides that, the US dollar even strengthened due to liquidation of higher-risk assets. Today it's more about defensive risk sentiment, particularly in equities.
However, it's hard to detect a strong trend as it was said by Vassili Serebriakov, an FX strategist at UBS New York. The bias is skewed toward dollar weakness.
Banking Turmoil is Grabbing the Attention again
However, he thought that it's hard to see a prominent trend until the United States data weakens substantially. Banking turmoil is also back in the market's attention.
Mass media reported that third-party deposits at First Republic Bank plummeted. First Republic is one of the troubled banks that only secured a $30 billion bailout last month.
That is why; this report indicates the company is still in danger of going out of business. As usual, turmoil like this hoisted the prestige of the safe haven currency.
Not only did the US dollar take the opportunity to go higher, the Japanese yen was observed to strengthen against all other major currencies. USD/JPY slipped by about 0.3%, while EUR/JPY and GBP/JPY fell by almost 1.0%.
EUR/USD shows Its Best Performance
The US Dollar Index or it is also known as DXY fell again to the range of 101.00 in a trading on Wednesday (26/April). This was occured after that currency briefly climbing on Tuesday.
Market sentiment improved, so traders released safe haven assets and bought back dollar rivals. The EUR/USD duo performed best in the major arena where it rising about 1% to touch 1.1095 as the highest level in the year.
Market participants were previously nervous due to skewed news about First Republic Bank in the United States, thus releasing high-risk assets and accumulating safe havens.
However, further deepening of the news shows limited potential impact and no systemic effect on the U.S. banking system. Lee Hardman, a senior currency analyst at MUFG said his opinion.
Lee Hardman said that The broader impact appears to be limited. It seems that shares of other regional banks maintained a better performance and the market sees it as an isolated incident.
That's why the analysts saw a slight increase in risk assets and the dollar gave back some of its gains yesterday. The change in the direction of the USD is likely to be favorable for the euro and sterling.
It is especially the absence of new data from the Eurozone and the UK today. While EUR/USD rose by about 1%, GBP/USD experienced a total decline yesterday.
Again, that pair approached the important resistance threshold at 1.2500. The euro and pound continue to move in rhythm with no clear drivers to justify the divergence between the two currencies at the moment.
That is as most of the news comes from the U.S. and the dollar side. This was said by Francesco Pesole, a forex strategist at ING. The publication of the latest economic reports from America tonight also suppprts the improvement in market sentiment.