The US Dollar has made a robust comeback, buoyed by positive local data and a deteriorating risk sentiment ahead of crucial central bank meetings this week. As the EUR/USD pair retreats from its earlier multi-month high above 1.0950, the currency now tests the 1.0900 level. The risk-averse market environment is contributing to the US Dollar's strength, making it challenging for the pair to maintain its bullish momentum.
The Atlanta Federal Reserve's GDPNow model has revised its forecast for the first quarter of 2023, projecting a GDP contraction of -2.1%, a decline from the previous estimate of -1.6% on March 7. This downward adjustment is attributed primarily to weaker retail sales, which have dampened real personal consumption expenditures growth from 1.1% to a mere 0.4%. Additionally, the Atlanta Fed has acknowledged that the earlier forecast was skewed due to the inclusion of substantial gold imports from London.
In contrast, the Blue Chip Economic Indicators report has adjusted its GDP forecast to a more optimistic 1.5%. Despite these differing projections, the risk mood remains sour, with the US Dollar holding its ground amid this atmosphere.
The US travel and tourism industry's future looks promising, with projections indicating it will generate $223.64 billion by 2025. However, Adam Sacks, president of Tourism Economics, warns that losses could surpass current estimates if tensions endure.
“While the US travel and tourism industry is projected to generate $223.64 billion in 2025, losses could exceed current estimates if tensions persist, Adam Sacks, the president of Tourism Economics, told BI. ‘Canada is the US top visitor market, so the stakes are high,’ he added.” – Adam Sacks
As investors prepare for key central bank meetings this week, the risk-averse sentiment continues to bolster the US Dollar. The currency's newfound strength is largely supported by upbeat local data, which contrasts with other economic indicators pointing towards potential slowdowns.
Allocations to U.S. stocks have recently experienced a significant decline, fueled by concerns surrounding stagflation, trade wars, and a perceived end to U.S. exceptionalism. According to a Bank of America global outlook report, these factors have driven a "bull crash" in sentiment.
“Allocations to U.S. stocks saw the biggest drop ever in March with concerns over stagflation, trade wars and end of U.S. exceptionalism driving a ‘bull crash’ in sentiment.” – BoA global outlook report
The EUR/USD pair's retreat from its previous highs underscores the impact of the strengthening US Dollar and a souring risk mood on currency markets. Analysts attribute this trend to anticipation surrounding impending central bank decisions and their potential influence on global economic conditions.
While the US Dollar continues to gain momentum, other economic sectors face challenges. The travel and tourism industry sees potential growth, yet external tensions threaten to offset anticipated gains.