Better US economic data usually motivates a strengthening of the US dollar. However, the situation today is the opposite.

The US Dollar Index (DXY) weakened by around 0.4% to the range of 101.70s in early Tuesday's European session (April 18th). Some recent economic reports from the US and China improved market expectations for global economic growth, causing the greenback to lose support from safe-haven buying interest that prevailed since the end of last week.

dxyDXY Daily chart via TradingView

Yesterday's release of the NY Empire State Manufacturing Index showed an increase in manufacturing activity for the first time in five months. The data surged from -24.6 in March to +10.8 in April, well above the consensus estimate of -18. Meanwhile, the NAHB Housing Market Index displayed increased developer confidence for the fourth consecutive month.

Fears of a recession risk in the US briefly surfaced following the release of US retail sales data on Friday. However, both recent data releases have restored some market sentiment. The FedWatch CME now shows the probability of a 25 bps Fed rate hike in May, recovering to 91%, although the market still expects the Fed to cut rates at the end of the year.

Better-than-expected US economic data usually motivates a strengthening of the US dollar. However, the situation is the opposite today, as the greenback had already strengthened due to market concerns following the release of the retail sales data--and now loses support from that aspect. The improved market sentiment boosts AUD/USD, NZD/USD, EUR/USD, and GBP/USD.

"The dollar can remain sensitive to the strength, or not, of the economic data as the Fed likely nears the end of their tightening cycle," said Kristina Clifton, an economist at Commonwealth Bank of Australia (CBA). 

China's Q1 2023 GDP report also lifted global market sentiment, which exceeded expectations. China's GDP growth was solid, supported by domestic and export activities, indicating persistent post-pandemic recovery momentum.