- The US dollar index declined for the second straight day as Jerome Powell and Steve Mnuchin testified.
- The Fed chair pledged to do "whatever it takes" to support the economy in this period of crisis
- The testimony came a few hours after housing starts and building starts data disappointed.
The US dollar index (DXY) declined today as the market reacted to testimony by Jerome Powell and Steve Mnuchin in congress.
US dollar index reacts to Powell testimony
In the testimony, Steve Mnuchin said that his department was continuing to support American businesses and companies during this crisis. He said:
“We have issued more than 140 million Economic Impact Payments for over $240 billion to provide relief to millions of Americans. A typical family of four received $3,400.”
He also said that the department had distributed more than $340 billion to states, local, and tribal governments. Most importantly, he provided a list of the programs his department has started. They include the Primary Dealer Credit Facility, PPP lending facility, and the Municipal Liquidity Facility.
On his part, Fed chair, Jerome Powell, said listed the things the central bank has done to support the economy. These include bringing interest rates to historic lows and providing unlimited liquidity to the financial sector. He said:
“In March, we lowered our policy interest rate to near zero, and we expect to maintain interest rate at this level until we are confident that the economy has weathered recent events and is on track to achieve maximum-employment and price-stability goals.”
He delivered the statement a few days after he had an interview with CBS. In the interview, he predicted that the US economy would take longer to recover from the current crisis.
US housing starts and building permits disappoint
Earlier on, data from the Commerce Department showed that building permits and housing starts dropped sharply in April.
The housing starts dropped by 30.2 per cent in April after dropping by 5.7 per cent a month before. The starts fell to 891k from the previous 1.27 million in March. Single-family housing starts declined to 650k, which was 25.4 per cent below the March figure of 871k. In the same month, housing completions fell to 1.176 million from the March estimate of 1.279 million.
Another critical number released was building permits. This number measures the number of permits issued to developers to start building.
Privately-owned building permits fell by 20.8 per cent from the previous 1.356 million to 1.07 million. Single-family permits dropped by 24.3 per cent to 669k.
These numbers, which are the worst since 2015, show how much the US economy has been affected. Just last week, numbers from the US showed that retail sales and industrial activity nosedived in April while the initial jobless claims continued to soar. The unemployment rate has soared to more than 14 per cent while inflation declined in the month.
The US dollar index (DXY) has been under pressure this week after a report of a vaccine by Moderna. The vaccine, which is in initial stages of testing, brought hope that the disease will be managed medically. The index fell after the news because most global investors rushed to local currencies hoping that activity will improve.
The US dollar has weakened against the euro, British pound, Australian dollar, Swedish krone, and the New Zealand dollar. The dollar index has nonetheless gained against the Japanese yen.
US dollar index technical outlook
The US dollar index (DXY) is trading at 99.47, which is lower than last week’s high of 100.55. On the daily chart, the price is slightly below the 61.8 per cent Fibonacci Retracement level. The price is slightly below the 50-day exponential moving average and slightly above the 100-day EMA. Its volatility, as measured by the Average True Range (ATR) is at the lowest level since March 20. This means that the US dollar index may break out in the downside in the near term.