USD: The worse the data, the better? - Commerzbank

Yesterday saw the next round of poor sentiment indicators from the US. According to the Conference Board, US consumer confidence fell to its lowest level since the start of the coronavirus pandemic. This is now 'old news' for the currency market it seems, with USD exchange rates barely reacting, Commerzbank's FX analyst Thu Lan Nguyen notes.

Poor data results can put pressure on the USD

"Don't be put off by US President Trump's effusive praise for his tariffs at some rally. He has already shown that he reacts to such pressure -- for example with the 90-day pause in reciprocal tariffs or the withdrawal of tariffs for various sectors, which was undoubtedly in response to the slump on the stock markets as well as protests from the affected industries. The faster and more severely the US economy threatens to collapse, the more likely it seems to me that Trump will reverse much of his trade policy. If, on the other hand, the US economy shows signs of resilience, he could feel vindicated in his strategy and leave the tariffs at higher levels."

"Following Trump's open criticism of the US Federal Reserve, which he believes is not lowering interest rates quickly enough, it is highly likely to leave interest rates unchanged at its upcoming meeting in May -- not only because of the increased inflation risks, but also to send a signal of independence. In an environment in which economic momentum is threatening to weaken very quickly, this move would appear all the more hawkish and therefore dollar-positive -- given that it is not signalling that it could cut interest rates at one of its next meetings."

"In view of today's upcoming US data (GDP and ADP employment survey), this means that poor results could put pressure on the dollar in the short term. However, they increase the chance of a de-escalation in the US trade conflict, which could ultimately benefit the US currency."