USD spikes for fourth day despite mixed economic data

Today’s headlines

What’s happening: The US dollar recorded gains for the fourth session in a row on Thursday.

What happened: The US dollar index, which measures the greenback’s performance versus a basket of major peers, surged to a two-month high.

Traders assessed several economic reports released on Thursday, including US GDP growth.

Why it matters: Economic data released on Thursday showed US weekly initial jobless claims increasing by 4,000 to 229,000 during the latest week. Although this figure was much higher than market expectations of 225,000, data for the previous week was revised lower.

The US also released GDP data, which showed the economy growing by 1.3% in the first quarter, higher than the flash reading of 1.1%.

There are growing speculations of the Federal Reserve raising interest rates by 25 basis points at its upcoming meeting in June. Recent comments from central bank policymakers signalled they are divided on whether to pause monetary tightening.

Investors also assessed the US government’s debt default situation, with negotiations continuing in Washington to raise the debt ceiling.

Fitch Ratings put the US credit on watch for a possible downgrade, saying that the debt ceiling talks have increased the risk of the government beginning to “miss payments on some of its obligations.”

Meanwhile the German economy, the largest in Europe, shrank by 0.3% in the first quarter, exerting pressure on the euro. Safe-haven demand helped the US dollar index reach a two-month high.

The US dollar index gained around 0.4% to reach 104.25 on Thursday, after surging to as high as 104.27 during the session, the strongest since March 17. The index gained for the four straight session, marking the longest winning streak since late February.

The EUR/USD forex pair fell around 0.2% to 1.0728, while the GBP/USD pair declined by around 0.4% to 1.2321.

What to watch: Traders will watch data on PCE price index, consumer sentiment and durable goods orders from the US today. The US core PCE price index, the Fed’s preferred inflation gauge, is expected to rise by 4.5% in April, versus 4.6% in March.

Analysts expect the University of Michigan’s consumer sentiment index to decline to a six-month low of 57.7 in May, from 63.5 in the prior month. New orders for US manufactured durable goods, which grew by 3.2% in March, is projected to decline by 1.1% in April.

The ongoing debt ceiling talks between President Joe Biden and Republican Speaker Kevin McCarthy will remain in focus.

The markets today

Dollar Tree will be in focus today following the release of its first-quarter results

Context: Shares of Dollar Tree fell sharply on Thursday, after the company reported mixed quarterly results.

Details: Dollar Tree reported overall sales growth of 6% year-over-year to $7.32 billion for the first quarter, which surpassed the consensus estimates of $7.28 billion.

However, the company missed earnings expectations for the quarter and slashed its full-year profit outlook due to a slowdown in demand for discretionary products and rising cost pressures.

Dollar Tree’s operating margins shrank by 490 basis points to 5.7% and operating income declined by 42.6% to $419.7 million. Adjusted earnings came in at $1.47 per share, missing Wall Street expectations of $1.52 per share.

The company opened 107 new stores during the quarter, while closing 29 stores.

Management guided to second-quarter sales of $7 billion to $7.2 billion, in-line with expectations. The company also guided to earnings of 79 cents to 89 cents per share, below the consensus estimates of $1.22 per share.

For the full year, the company revised its sales forecast to $30-$30.5 billion, from its earlier outlook of $29.9-$30.5 billion. The company lowered its earnings guidance to $5.73-$6.13 per share, from its prior outlook of $6.30-$6.80 per share.

How shares responded: Dollar Tree’s shares fell 12% to close at $136.66, following the release of quarterly results on Thursday.

What are expectations: Traders will watch inflation data, which is expected to significantly impact Dollar Tree’s overall margins ahead.

Other Markets: US trading indices closed mostly higher on Thursday, with the S&P 500 and Nasdaq 100 up by 0.88% and 2.46%, respectively, and the Dow Jones index down by 0.11%.

The news shaping the markets

Japan will impose further sanctions on Russia after the G7 summit agreed to ramp up measures against Moscow’s invasion of Ukraine.

Australia’s retail sales came in flat at A$35.3 billion in April, following 0.4% growth in March, exerting pressure on the AUD/USD forex pair.

New Zealand’s ANZ Roy Morgan Consumer Confidence Index came in almost flat at 79.2 in May, versus April’s reading of 79.3, which sent the NZD/USD pair slightly higher in forex trading this morning.

Mexico’s current account deficit widened to $14,282 million in the first quarter, from $12,365 million in the year-ago period. However, the deficit in services shrank to from $4,257 million to $3,255 million, lending support to the MXN/USD forex pair.

Colombia’s industrial confidence indicator declined to -5.9 in April, from 3.5 in the prior month, which sent the COP/USD pair lower in forex trading this morning.

What else to watch today

UK’s retail sales, France’s consumer confidence, number of unemployed persons and initial jobless claims, Italy’s consumer confidence and manufacturing confidence, Turkey’s tourist arrivals, Brazil’s current account, foreign direct investment and Federal tax revenues, India’s foreign exchange reserves, Mexico’s GDP growth rate, Canada’s wholesale sales and government budget value, as well as US personal spending, personal income, goods trade balance, wholesale inventories and Baker Hughes crude oil rigs.