USD consolidates ahead of GDP - Scotiabank

The US Dollar (USD) continues to consolidate and is trading mixed versus its major currency peers on the session. It's been a rough month for the USD - its worst monthly performance since 2022, according to Bloomberg - and sentiment remains fragile, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD trades mixed versus majors into month-end

"The USD has not benefited in an obvious way from anticipated month-end flows which may be another sign of trouble if that absence of demand reflects foreign investors choosing not to adjust hedges after the past month's swings in US asset markets where US fixed income especially has underperformed. There may be more trouble ahead for the USD in the form of this morning's US data reports. US Q1 GDP is expected to be soft-- how soft is the question. Fed regional GDP tracking measures probably overstate the weakness and strength in the economy, reflected in a consensus estimate of -0.2% growth that sits between the weak Atlanta Fed Nowcast (-2.7%) and the relatively firm NY Fed's tracking (+2.6%)."

"The sharp widening in the US trade deficit in Q1, as importers front-ran tariffs, may have subtracted significantly from US growth. Some of the widening in the trade account reflected metals imports (gold) ahead of tariffs, which should not impact GDP. But even excluding gold shipments, growth may still not be much better than flat. A weak Q1 and ongoing tariff uncertainty which suggests more headwinds for the economy in Q2 may be hard for markets to digest. Core PCE data is expected to be better behaved in March (+0.1%) but broader trends remain sticky and stalled growth plus still sticky core PCE Y/Y will compound concerns for investors mulling US stagflation risks. Note ADP data are out at 8.15ET."

"The DXY is tracking a little higher on the session but the index remains below important resistance at 99.85. A move above will relieve pressure on the USD broadly in the short run and perhaps allow for a push to 102. The underlying trend remains weak, however, which rather favours a downside resolution to the current range. Look for the DXY to trend a little softer again below support at 98.90."