U.S. dollar falls at 2-month lows ahead of key economic data

DXY-U.S. dollar index traded to a nearly two-month low of 102.50 on Thursday morning following two weeks of steep losses on the back of the recent collapse of several U.S. banks and the prospect of any pauses in the Fed’s rate hikes.

DXY-U.S. dollar index, Daily chart

The dollar index, which tracks the greenback against six major peers has been remaining on the back foot since the start of the banking turmoil in early March with the collapse of Silicon Valley Bank and Signature Bank.

The banking failure caused a selloff across the board in Wall Street amid risk aversion sentiment, and fuelled jitters about the strength of the U.S. economy, which put in question the dollar outlook.

The dollar will remain very sensitive and vulnerable to signs of any further cracks in the U.S. banking system, and local economy.

Weakness in the dollar has benefited major peers and commodities, with Euro jumping to a two-month high of $1.0860, the Pound Sterling rising above the $1.23 level, Aussie breaking above the $0.67 key resistance level, Bitcoin rebounded to nearly $29,000, while the dollar-denominated gold and silver climbed to yearly highs of $2,000/oz and $23.50/oz respectively, and Brent crude oil to $78/b.

The dollar weakness came despite a rise in 2-y and 10-year U.S. Treasury yields back above 4% and 3.50%, respectively, which is also the result of falling demand for those safety assets vs bullion such as gold and silver.

However, the bank crisis fears eased after the intervention by U.S. regulators that guaranteed banking deposits and liquidity in the system, while the regional U.S. lender First Citizens BancShares scooped up the assets of Silicon Valley Bank last Monday.

Market participants are now waiting for the release of the U.S. GDP and weekly jobless claims later Thursday, and Personal Consumption Expenditures data on Friday for further fresh clues on inflation, and about the state of the economy and policy plans.

On the flip side, some investors believe that the easing fears of a banking crisis will allow Federal Reserve to keep raining interest rates until bringing inflation down to Fed’s 2% target.