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US Consumer Confidence is a key indicator of consumer sentiment and economic outlook. The upcoming release of March’s data is expected to show a modest improvement after a surprise decline in February. This could have positive implications for the US Dollar (USD).
Market Anticipates Uptick in US Consumer Confidence
Financial markets appear to have adjusted to the Federal Reserve’s cautious stance on interest rates. The USD has retreated from its recent peak but maintains a bullish bias. The upcoming US Consumer Confidence report, scheduled for Tuesday, is expected to show a rise to 106.9, up from 106.7 in February.
February’s Dip Raised Concerns
The February reading came as a surprise, as the index fell from 110.9 in January, snapping a three-month winning streak. The report indicated broad-based weakness in consumer confidence, reflecting lingering uncertainty about the US economy. Both the Present Situation Index and the Expectations Index fell, with the latter dipping below 80 – a level often associated with an impending recession.
Inflation Expectations Continue to Ease
On a brighter note, average inflation expectations for the next 12 months continued to decline, reaching 5.2% in February. This marks the lowest level since March 2020 and a significant drop from the mid-2022 peak of 7.9%.
Fed Policy Likely Overshadows Confidence Data
The impact of the US Consumer Confidence report might be muted this time around. The Federal Reserve’s recent policy decision, accompanied by updated economic forecasts, may have already addressed some concerns. The Fed maintained interest rates and acknowledged the slower pace of inflation reduction. Additionally, upwardly revised growth projections point towards a robust economy, potentially mitigating recession fears despite the February dip in US Consumer Confidence. The central bank also hinted at a potential rate cut in June, with policymakers anticipating a total reduction of 75 basis points throughout 2024.
USD Outlook Hinges on Confidence Data
The US Dollar has recently gained strength on the back of positive economic data, suggesting the economy might avoid a recession. Markets seem to have accepted the notion of a slower pace of interest rate cuts compared to earlier expectations. Currently, strong US economic data tends to favor the USD over riskier assets.
Therefore, a better-than-anticipated US Consumer Confidence reading could help the USD recoup its modest Monday losses. A figure exceeding January’s 110.9 would likely be the most significant catalyst for USD demand. Conversely, another decline could exert further pressure on the US currency, although a major sell-off remains unlikely.
Technical Indicators Point to Continued USD Strength
As of now, the Dollar Index (DXY) hovers near 104.20, following its one-month high of 104.49 reached last Friday. Technical indicators on the daily chart suggest a corrective decline, with indicators retreating from recent highs but still within positive territory. Notably, the DXY remains comfortably above its moving averages, with the 200-day Simple Moving Average (SMA) providing strong support around 103.70.
