Dollar slightly down as investors digest economic data and Fed signals

The dollar index edged lower to 104.1 on Tuesday but remained near a three-week high as investors weighed a mix of economic data, Federal Reserve commentary, and potential tariff implications.

Dollar slightly down as investors digest economic data and Fed signals

The latest CB consumer confidence survey revealed a sharp decline in morale for the fourth consecutive month in March, with future expectations sinking to a 12-year low and financial outlooks deteriorating to their weakest levels since July 2022. This added to concerns about consumer sentiment and potential headwinds for economic growth. Meanwhile, data released on Monday indicated that U.S. business activity strengthened in March, with a notable rebound in the services sector countering renewed weakness in manufacturing. This divergence highlights the uneven nature of the economic recovery, as manufacturing struggles with lingering supply chain disruptions and softer global demand.

Interest rate policy remains restrictive

On the monetary policy front, Fed Governor Adriana Kugler acknowledged that interest rate policy remains restrictive but cautioned that progress toward the 2% inflation target has slowed. She described the recent rise in goods inflation as "unhelpful," reinforcing expectations that the Fed may take a cautious approach to rate cuts. Other Fed officials have also signaled a wait-and-see stance, emphasizing the need for more data before committing to policy adjustments. Elsewhere, political developments added another layer of market focus. Recent remarks from former President Donald Trump raised hopes for a more strategic and targeted tariff policy should he return to office, potentially easing concerns about widespread economic disruption. However, uncertainty remains as investors continue to assess the broader implications of trade policy shifts alongside evolving economic conditions.