US dollar index falls on historic initial jobless claims data

US dollar index falls on historic initial jobless claims data

  • The US dollar index declined after data showed that 6.6 million Americans signed for jobless insurance.
  • The American Producer Price Index (PPI) data also disappointed in March.
  • The number show how hard the American economy has been hit by the current coronavirus pandemic

The US dollar index declined after the government released the initial jobless claims for the week ending on April 4. The numbers showed that more than 6.6 million Americans signed for unemployment insurance claims. This was slightly below last week’s reading of 6.8 million.

Dollar index falls on weak jobless claims data

Dollar index falls on weak jobless claims

Weak initial jobless claims data was expected

The initial jobless claim data was worse than the 5.5 million that analysts polled by Bloomberg were expecting. Meanwhile, the continuing jobless claims rose to more than 7.45 million from the previous 3.5 million.

These numbers came a week after the Labour Department released the official jobs numbers for March. The data showed that the unemployment rate rose to 4.4% in March from a 50-year low of 3.5%. The nonfarm payrolls declined by more than 701k in March, which was the worst number ever recorded. The average weekly hours, participation rate, and wages also declined.

Economists expect worse to happen. James Bullard, the St. Louis Fed president, has said that the unemployment rate could rise to above 30%. Other analysts have said that the number of Americans signing for jobless claims could hit 20 million this month. The expectations for economic growth are also low. Some analysts expect the country’s economy to shrink by as much as 15% in the second quarter.

It’s easy to see why. Most states, including California, New York, and Florida, have announced state-wide lockdowns. Many companies, especially those in manufacturing, hospitality, entertainment, and airlines, have furloughed their employees. Some of the most prominent companies that have done this are Tesla (NASDAQ: TSLA), Disney (NYSE: DIS), and General Electric (NYSE: GE).

US PPI falls in March

The Bureau of Labour Statistics (BLS) released disappointing producer price index data today. The numbers showed that PPI fell by a seasonally-adjusted rate of 0.2% in March. This was a slight improvement from the 0.6% decline that was recorded in February. The PPI rose by 0.7% on an annual basis, which was lower than the previous increase of 1.3%.

Demand for processed goods fell by 1.0% in March, the lowest reading since September 2015. This decline was attributed to the weakness in the energy sector. Meanwhile processed goods for immediate use dropped by 1.1% in March, which was the lowest level since December 2018.

Other data released from the US has been disappointing also. Last week, data showed that total vehicle sales fell to 11.40 million from the previous 17.04 million. Another data showed that the manufacturing PMI dropped to 48.5 in March while construction spending dropped by 1.3%.

At the same time, the country’s national debt has continued to grow. Data from the US Debt Clock shows that the debt has grown to an unprecedented $24.018 trillion. In comparison, the country had a debt of $10 trillion in 2009. This debt will continue to grow as the country’s budget deficit, and spending continues to rise. The Federal Reserve’s balance sheet has also risen to more than $5.8 trillion.

Further, the Fed surprised markets when it announced that it would provide more than $2.3 trillion in loans. In a statement, Jay Powell said:

“The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible”

Summary

US dollar index technical outlook

US dollar index technical outlook

The US dollar index is facing pressure as the Fed continues with its open-ended quantitative easing program. The government is also spending trillions of dollars to boost the economy and prevent a deeper recession. Technically, the dollar index could decline and retest the 50% Fibonacci Retracement level of 98.75. This is evidenced by the fact that the 14-day and 28-day exponential moving averages are making a bearish crossover on the four-hour chart above.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.

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