US dollar index (DXY) sits and waits for US CPI, retail sales data

The US dollar index (DXY) retreated for the second day in a row after a relatively hawkish Jerome Powell statement. It also pulled back ahead of key US economic data like inflation, retail sales, industrial and manufacturing production, and housing starts. It was trading at $105.00, down from the year-to-date high of $106.52.

Key US economic data ahead

Jerome Powell, the head of the Federal Reserve, believes that the economy is doing well while inflation is dropping at a slower pace than expected. As he said after the Fed decision last week, he expects that interest rates will hold steady for a while.

His statement came after the US published strong Producer Price Index (PPI) data. The headline PPI rose from 1.8% in March to 2.2% in April while core PPI rose from 2.1% to 2.4%.

The US will next release the closely watched Consumer Price Index (CPI) data on Wednesday. Economists believe that the country’s inflation remained stubbornly above the Fed’s target of 2.0% in April because of the rising energy, insurance, housing, and medical costs. 

The other crucial number will be the US retail sales numbers, which will provide more information about the health of the consumer. Economists expect the data to reveal that sales rose by 0.4% while core sales jumped by 0.2%.

Retail sales have done well in the past few months even as credit card interest rates have jumped to the highest point in decades. Consumers have benefited from Buy Now Pay Later (BNPL) applications and the rising wages.

The US dollar index will also react to the crucial Philadelphia Fed manufacturing index, building permits, and housing starts numbers set for Thursday.

DXY index chart

European economic data ahead

The next catalyst for the DXY index will come from other countries, especially in Europe and Asia. Eurostat will publish the bloc’s inflation numbers on Friday. Based on the preliminary figure, economists expect the report to reveal that the headline CPI rose to 2.4% in April while the core CPI moved to 2.7%.

The Eurostat will also release the second estimate of the GDP number on Thursday. These numbers will confirm whether the bloc exited a recession. Recent data shows that countries like France and Germany are helping to lead the bloc’s economic recovery.

The US dollar index will also react to the latest Japan GDP numbers scheduled for Thursday. The report will confirm that the world’s fourth-biggest economy sunk into a technical recession in the first quarter.

These numbers are important because the US dollar index is made up of several currencies like the euro and the Japanese yen.