April 21 (Reuters) - The dollar index recovered some ground after hitting a three-year low earlier on Monday, but it was still lower in afternoon trade, pressured by worries over Federal Reserve independence, declining U.S. assets, and falling energy prices.
DXY reached its most oversold level on the 14-day RSI since July, 2020 following a weekend gap down in thin liquidity. U.S. President Donald Trump reiterated his criticism of Federal Reserve Chair Jerome Powell, warning that the U.S. economy faces a potential slowdown unless interest rates are promptly reduced. Chicago Fed President Austan Goolsbee favored a wait-and-see approach for policy, saying that if tariff impacts remain confined to the 11% of the economy tied to imports, their overall effect may be relatively minor.
Trade is top of mind when hundreds of finance leaders descend on Washington this week at the semi-annual gatherings of the International Monetary Fund and World Bank Group.
In U.S. data, an index of leading indicators fell 0.7% in March. Earnings, central bank speakers and PMIs are also on this week's docket. EUR/USD surged to 1.1575, its highest level in over three years, before paring gains.
Gains were exaggerated by 1.15 barrier options and thin liquidity due to the Easter holiday. EUR/USD remains overbought, yet the bulls' case is bolstered by narrow retracements, a bullish crossover of the 55-DMA above the 200-DMA and increasing position building in futures. Nearby EUR/USD support lies at the April 15 low of 1.1263. The common currency may receive another boost if Ukraine peace talks progress this week. Sources told Reuters that the European Union is looking at ways to make it easier for U.S. gas exports to comply with emissions rules.
GBP/USD trimmed its gains after nearing the 2024 high of 1.3434, as Easter Monday kept trading volumes subdued. Despite entering overbought territory following a 10-day advance, bullish momentum is expected to provide support. The 5-day moving average at 1.3281 and the April 18 low at 1.3262 serve as near-term support levels. This week’s focus includes PMIs and several appearances from Bank of England speakers.
USD/JPY remains on the defensive as U.S. equities and energy prices come under pressure.
Key events this week include Finance Minister Katsunobu Kato's visit to the U.S., as well as April Tokyo CPI and PMI data. Attention is centered on USD/JPY's 2024 low at 139.58, which lies just below the key psychological level of 140. Trend-following resistance is noted at the 200-hour moving average of 143.13 in USD/JPY. Sources indicate that the Bank of Japan is expected to communicate at next week's policy meeting that higher U.S. tariffs are unlikely to disrupt the ongoing cycle of rising wages and inflation.
Treasury yields were mixed as the curve steepened sharply. The 2s-10s curve was up about 12 basis points to +53.0bp.
The S&P 500 sank 3.3%, dragged lower by broad sector losses.
Oil slid nearly 2.2% on signs of progress in U.S.-Iran talks, while demand worries and weather sent natural gas down 6.5%.
Gold rose over 3% to a new record while copper was nearly unchanged. Heading toward the close: EUR/USD +1.12%, USD/JPY -1.05%, GBP/USD +0.63%, AUD/USD +0.62%, DXY -1.07%, EUR/JPY -0.06%, GBP/JPY -0.46%, AUD/JPY -0.46%.(Editing by Burton Frierson Reporting by Robert Fullem)
