FX.co ★ 25.04.2024: Dollar’s dominance dwindling? Outlook for S&P 500, EUR/USD, Brent

Today's trading sessions were significantly influenced by a slew of economic data that failed to meet market expectations. Despite growth in the GDP of the world's leading economy and consumer demand reports from the third-largest economy, the outcomes did not align with forecasts. Adding to the mix was the market's concern over potential currency interventions by the country that was formerly ranked third, setting the stage for potentially volatile trading patterns.

For those who are regular viewers of our financial reviews, deciphering this mini-puzzle of economic indicators involving the world's current and former top economies would have been straightforward. Newcomers to InstaForex's financial reviews will also quickly grasp the details. After all, both the currency and the economy of the United States are currently undisputed global leaders.

Consequently, the US dollar continues to dominate the Forex market. The resilience of US manufacturing and consumer demand against aggressive monetary policies has even sparked discussions about an "American exceptionalism" amid other major global economies. This phenomenon reflects a unique stance of the US in maintaining stability and growth in contrast to its counterparts, underscoring its pivotal role in the global economic arena.

It is likely that the Forex market will continue to struggle against the US dollar until other global economies start to outperform the United States, and until the Federal Reserve provides clearer signals about easing its policies. However, recent developments suggest that the US economic situation is not as robust as previously thought.

For example, the latest GDP report revealed that the US economy is beginning to decelerate, with growth of only 1.6% in the first quarter of this year. This marks a slowdown from the previous rate of 3.4% and falls short of the 2.5% growth anticipated by analysts.

At the same time, the GDP deflator, a crucial indicator for the US Federal Reserve that measures price increases, rose by 3.1%, slightly exceeding the forecast of 3%. This suggests that even as the US economy shows signs of weakening, inflation continues to escalate.

Following a sharp sell-off earlier this week due to weak business activity indicators, the US dollar has rebounded on the back of more aggressive expectations from the Federal Reserve. Today, its index against a basket of six major currencies traded within a bullish range of 105.5 to 106.0 points.

However, it is important to note that long positions on the greenback are not entirely bulletproof. This is evident from the losses it suffered against the euro and pound when they surged on optimistic business activity data from the Eurozone and the UK.

In contrast, today brought positive news from Germany, the Eurozone's largest economy. The German consumer climate indicator rose by 3.1% for May, reaching a level of -24.2, the highest in two years. Additionally, income expectations have surged to their highest since January 2022.

Meanwhile, in the United States, the consumer sentiment from the University of Michigan dipped to 77.9 today, falling significantly below the anticipated 79. It's important to note that Americans generally refrain from making judgments about the economy, which they believe could be greatly influenced by the upcoming presidential elections this year.

Currency pairs linked to the dollar index are influenced not only by sentiments within a single country. For instance, yesterday the dollar rose above the 155 mark against the yen for the first time since 1990, and today, the pair continues its upward trajectory. As a result, the yen has reached a new 34-year low against the dollar and a 16-year low against the euro.

The upcoming policy meeting of the Bank of Japan, set to conclude on Friday, needs to be aggressively proactive to bolster its currency. However, this is unlikely to happen. The Japanese authorities find themselves in a precarious position. If they do not intervene, breaking the 155 level could trigger a flood of speculators.