US Dollar recovery faces hurdles as trade optimism battles conflicting signals and weak technical momentum.
Key US employment and inflation data this week could reshape Fed rate expectations sharply.
A sustained move above 100 in DXY is needed to confirm any meaningful reversal.
Looking for actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to InvestingPro’s AI-selected stock winners.
The US dollar opened the week with a small gain, but remains uncertain for investors. Progress in US-China trade talks, Trump’s stance, and a busy schedule of upcoming economic data will shape the dollar’s direction this week.
Trade Talks Progress Improves Sentiment
US President Donald Trump’s announcement of progress in trade talks with Japan and China was the key event that influenced markets over the weekend. He also mentioned the possibility of lowering tariffs on China and confirmed he had no plans to remove Fed Chairman Jerome Powell, both of which lifted risk sentiment.
Overall, the absence of negative comments helped strengthen optimism. The dollar index also held above a key level from last week while reflecting the improved mood.
However, updates on US-China relations remained unclear. While Trump claimed he met Chinese leader Xi Jinping and made progress, Chinese officials denied any meeting took place. US Treasury Secretary Scott Bessent also said he was unaware of any tariff discussions. These conflicting statements keep hopes of easing tensions alive but highlight that uncertainty continues.
US Dollar Recovery Limited
The (DXY) began the week with a 0.25% increase to 99.83. Still, the dollar remains down more than 4% for the month against major currencies, marking its biggest monthly loss in two and a half years. Even so, the softer tone in US-China relations helped the dollar recover slightly in the second half of last week.
On the Japan-US front, “weak dollar” rumors have surfaced. Japanese Finance Minister Katsunobu Kato and Finance Ministry official Atsushi Mimura denied that the US is pushing for a weaker dollar. For now, their remarks have eased concerns about a possible dispute between Washington and Tokyo over currency issues.
Meanwhile, debate continues around whether the US favors a weaker dollar. Analysts warn that such a strategy could trigger a selloff in US Treasury bonds, drive up inflation by making imports costlier, and prompt other developed countries to intervene in currency markets.
US Economic Data to Watch This Week
Markets will turn their attention to a busy data calendar this week. April figures, due Friday, will be the main highlight, with other employment indicators starting midweek also under close watch. In addition, the US preferred inflation measure, the , will be important for market sentiment. and reports and Eurozone numbers are also set to influence pricing.
If US jobs data disappoints, fears of an economic slowdown and recession could grow, increasing pressure on the policy. Markets are currently expecting a rate hike at the May 7th FOMC meeting. However, weak figures could fuel calls for a rate cut, while strong results might lift the dollar and reinforce the Fed’s cautious approach.
In the near term, optimism over trade talks and portfolio adjustments is helping the dollar stabilize. Still, the broader downward trend remains intact. A confirmed US-China trade deal or solid US data would be key for a more sustainable recovery. Without such support, pressure on the dollar is likely to persist into the end of the month and early next month.
For now, Trump’s trade strategies and upcoming economic reports will continue to play a central role in determining the dollar’s path.
US Dollar’s Technical Outlook
The dollar index began last week with a sharp drop, briefly falling below 98. The 97.5-98 range is a key support zone within the broader downtrend that started earlier this year, aligning with the Fib 1.272 level. A break below this area could push the DXY into the Fibonacci expansion zone, opening the door for a decline toward the 94-95 range.
Last week, the DXY found support around 98 and faced resistance near 99.8 during its rebound. A weekly close above 100, depending on upcoming developments, could signal a stronger recovery and pave the way for a move toward 102.5.
However, as long as the index stays below 100, pressure is likely to persist. In that case, support levels between 94 and 97 could come back into focus.
****
Be sure to check out InvestingPro to stay in sync with the market trend and what it means for your trading. Whether you’re a novice investor or a seasoned trader, leveraging InvestingPro can unlock a world of investment opportunities while minimizing risks amid the challenging market backdrop.
Subscribe now and instantly unlock access to several market-beating features, including:
ProPicks AI: AI-selected stock winners with proven track record.
InvestingPro Fair Value: Instantly find out if a stock is underpriced or overvalued.
Advanced Stock Screener: Search for the best stocks based on hundreds of selected filters, and criteria.
Top Ideas: See what stocks billionaire investors such as Warren Buffett, Michael Burry, and George Soros are buying.
Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk is at the investor’s own risk. We also do not provide any investment advisory services.
