MUFG Research discusses the USD reaction to the this week's soft batch of US data.
"The positive US dollar momentum from last week which carried through to the start of this week hit a roadblock yesterday lunchtime and at a key technical moment, the US dollar reversed notably but is unlikely to prove lasting. The year-to-date high of 109.29 was in sight (109.27) and close to being breached but the US housing data and the US PMI data provided a catalyst for a reversal. To us the price action suggests the move was as much technical as it was fundamental. Yes, the correction was triggered by data that was weaker than expected but the failure of DXY to break above that year-to-date high level meant the dollar was already weakening ahead of the data release," MUFG notes.
"We doubt weak data from the US at this juncture will alter the course for the US dollar. The appreciation of the US dollar is being driven not by US economic strength but more the grim deterioration in the global growth outlook," MUFG adds.