US Dollar set for worst weekly performance since March despite modest recovery

During early European trading on Friday, the US dollar rebounded from sharp losses in the previous session, as traders sought safe-haven assets following weak Chinese inflation data. Despite showing resilience against its major currency counterparts, the currency’s gains were presently limited, with modest daily gains near 103.50 after suffering its biggest daily drop in weeks by losing over 0.7% in the previous session. The US dollar is poised to conclude the second week in negative territory.

The early demand for the US dollar on Friday followed the release of data indicating that the Chinese Consumer Price Inflation (CPI) index contracted in May compared to the previous month, with the Producer Price Inflation (PPI) index declining at its most rapid pace in seven years.

In the United States, the week ending June 3 saw the US Department of Labor report 261,000 initial claims for unemployment benefits, which marked an increase of 28,000 from the previous week’s 233,000. This reading significantly surpassed the market’s expectation of 235,000, causing the US dollar to suffer substantial losses against its major currency rivals.

If the US Dollar Index (DXY) is able to recover 103.70, it may encounter immediate resistance at 104.00, followed by static levels at 104.50 and 105.00.

A bearish trend could strengthen and cause further decline if the US dollar concludes the week below 103.70. In that case, the level of 103.00 could be the next bearish target before reaching the static level of 102.70.