Manufacturing Sector Contracts, Dollar Demand Weakens

Empire State Manufacturing Index contracts again; global trade uncertainties weigh on markets ahead of key China GDP release.

The New York Empire State Manufacturing Index signaled ongoing strain in the U.S. manufacturing sector, logging a reading of -8.1 in April — its second straight monthly contraction. While better than the forecasted -14.5, the figure follows a steep decline of -20 in March, highlighting the continued fragility of industrial output amid inflationary pressures and trade uncertainty.

Activity softened across key components such as new orders and shipments, while input and selling prices surged at their fastest rate in over two years, stirring fresh concerns about cost-push inflation. Most notably, business sentiment has soured, with the index measuring future general business conditions plunging to -7.4 — its second-lowest reading in history.

These developments have left the dollar adrift, with the Dollar Index (DXY) unable to sustain a move above the 100.30 level, reflecting weak demand for the greenback and setting a cautious tone for the Asia session.

Manufacturing Sector Contracts, Dollar Demand Weakens

As the Asian session kicks into gear, market focus shifts to China’s highly anticipated release of GDP, industrial production, and retail sales figures. Analysts expect signs of a significant slowdown, as global trade tensions weigh on sentiment and economic momentum. A substantial miss could trigger sharp risk-off moves, particularly in energy markets, where crude oil prices have already been under pressure — down more than 20% from recent highs.

A disappointing data dump from Beijing could deepen concerns about global demand and further dent commodity-linked currencies and equities in the region.

U.S. Retail Sales and Powell’s Speech in Focus

Markets are also bracing for critical U.S. retail sales data due at 12:30 pm GMT. March figures are expected to rebound strongly with a 1.4% MoM rise, offering a potential tailwind to the dollar. However, previous underwhelming spending data suggests caution, and any downside surprise could exacerbate the greenback’s recent weakness.

Later today, Federal Reserve Chairman Jerome Powell speaks at the Economic Club of Chicago (5:30 pm GMT), with investors keen to hear how trade frictions may shape the Fed’s policy outlook ahead of the May FOMC meeting. His tone will be scrutinized closely, especially after the Fed’s March decision to hold rates at 4.25–4.50% while signaling increased uncertainty about the inflation path.

Market Snapshot and 24-Hour Biases:

• Gold (XAU): Strong Bullish
  With inflationary concerns and dollar weakness persisting, safe-haven flows could boost gold prices in the near term.
• Dollar Index (DXY): Weak Bearish
  The greenback remains under pressure amid tepid economic data and muted Fed hike expectations.
• Australian Dollar (AUD): Weak Bullish
  Despite a pullback, the AUD is benefiting from broad dollar softness and improving domestic demand metrics.
• Kiwi Dollar (NZD): Weak Bullish
  The NZD remains supported above 0.5900, bolstered by greenback weakness and strong export pricing.
• Japanese Yen (JPY): Weak Bearish
  With reduced demand for safe-haven assets, the yen is under pressure despite ongoing trade concerns.
• Euro (EUR): Medium Bullish
  Easing inflation and policy clarity from the ECB support a stronger euro, with 1.1300 acting as a floor.
• Pound Sterling (GBP): Medium Bullish
  Despite cooling inflation, robust demand for the pound persists as CPI data is expected to moderate again.
• Swiss Franc (CHF): Weak Bearish
  A calmer geopolitical backdrop is curbing safe-haven demand, weakening CHF support in the near term.
• Canadian Dollar (CAD): Event-Driven
  BoC’s rate decision and press conference will be pivotal. A hold in rates is widely expected, but Governor Macklem’s tone will guide market reaction.

Caution dominates heading into the Asia session. China’s economic releases may set the tone for risk sentiment, particularly for commodities and regional currencies. Meanwhile, U.S. data and Powell’s speech could offer fresh clues on the Fed’s next move — and the dollar’s path forward.

Stay Updated with the Latest Market News. Visit our YouTube Channel for the Latest Forex Analysis.