US Dollar Pullback Accelerates as Consumer Sentiment Plunges

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US DOLLAR OUTLOOK: DETERIORATING SENTIMENT MIGHT KEEP FED AT BAY

  • USD price action hammered across the board of major currency pairs this morning
  • US Dollar selling pressure is accelerating in response to dismal consumer sentiment
  • The DXY Index is down over -0.3% on the session as EUR/USD climbs, USD/JPY sinks
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The US Dollar is seeing some movement Friday morning. USD price action has been trading on its back foot for most of the session, but weakness is accelerating as markets digest a big miss on the latest consumer sentiment report just released. Preliminary consumer sentiment data for August showed a sharp decline in the headline index as well as the current conditions and future expectations subcomponents.

Headline consumer sentiment was reported at 70.2, which compares to the market forecast and prior reading of 81.2. Current conditions nosedived from 84.5 to 77.9 while future expectations plunged from 79.0 to 65.2 according to the survey of consumers. The sentiment report noted that the “stunning” loss of confidence, primarily driven by mounting fears over the covid delta variant, was the seventh largest month-over-month drop in the headline index.

DXY – US DOLLAR INDEX PRICE CHART: 15-MINUTE TIME FRAME (13 AUGUST 2021 INTRADAY)

DXY Index Price Chart US Dollar Outlook

Chart by @RichDvorakFX created using TradingView

To complicate things further for the Fed, the consumer sentiment report showed 5-10 year inflation expectations rising to 3.0% from 2.8% reported in July. The consumer sentiment report also highlighted how “consumers’ reaction to delta’s modestly higher precautionary measures indicates the difficulty of producing optimal policy responses.” In terms of market impact, this likely further complicates things for the Federal Reserve and the debate around tapering asset purchases. That unsurprisingly has corresponded with more US Dollar weakness given the greater likelihood that FOMC officials drag their feet to delay the taper timeline.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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