US Dollar Outlook: Bearish on Weak Consumer Confidence and Housing Data

Muted Dollar Response Despite Weak Consumer Confidence and Housing Data

The U.S. Dollar Index (DXY) steadied on Friday, remaining under pressure as Treasury yields declined following disappointing U.S. consumer confidence and housing data. The index held below its 50-day moving average, limiting any significant recovery attempts.

Downside momentum is expected to increase if the DXY breaches Thursday’s low of 106.334, potentially exposing a key retracement zone between 105.167 and 103.984, which includes the 200-day moving average at 104.936.

The University of Michigan’s Consumer Sentiment Index fell to 64.7 in February, marking a 9.8% drop from the previous month and a 15.9% decline year-over-year. Additionally, the National Association of Realtors reported a 4.9% drop in sales of previously-owned homes for January, a sharper decline than the anticipated 2.6%. Despite the muted reaction in the dollar, the market sentiment leans bearish due to the continued slide in Treasury yields.

Yen Gains as Dollar Suffers Third Weekly Drop

The dollar continued to retreat against major currencies, heading for its third straight weekly decline. Traders weighed U.S. President Donald Trump’s tariff threats, which so far have not materialized into broad economic impacts. The yen, which rallied to a 2-1/2-month high against the dollar, was supported by Japan’s 19-month peak in core inflation. The Bank of Japan’s (BOJ) chief Kazuo Ueda signaled readiness to control long-term rates through bond purchases, which tempered the yen’s momentum.

The dollar index has dropped 1.8% in February, setting up its largest monthly decline since September. While Trump introduced plans for lumber tariffs, he also hinted at a potential new trade deal with China, contributing to mixed sentiment.

Euro and Pound Edge Higher on Mixed Data

The euro slipped 0.2% to $1.0479, pressured by weak French business activity and a sluggish German recovery. Meanwhile, the British pound held near two-month highs at $1.264, supported by stronger-than-expected UK retail sales and business activity data. However, UK employers continued to cut staffing, signaling persistent economic headwinds.

Housing Market Weakens as Prices Hit Record Highs

The U.S. housing market showed further signs of stress, with existing home sales hitting a 15-year low. Elevated mortgage rates and record-high prices continue to deter potential buyers. The median home price reached $396,900 in January, marking the highest price on record for that month. First-time buyers struggled, accounting for only 28% of sales, well below the historical average of 40%.

Market Forecast: Dollar Bears Hold the Upper Hand

The DXY remains vulnerable as declining Treasury yields and mixed economic signals weigh on sentiment. Should the index break below 106.334, traders could see a move toward the 105.167 to 103.984 zone. With Trump’s tariff threats lacking concrete impact and weak U.S. data offering little support, the bias favors continued downside in the dollar. Traders will closely monitor upcoming economic releases and Treasury yield movements for further direction.

More Information in our Economic Calendar.