Consumer Confidence Sinks as Recession Headwinds Grow, USD Gains on Risk-off Mood

Key points for US consumer confidence:

• April Consumer Confidence drops to 101.3, well below expectations of 104.00
• The decline in the main indicator can be attributed to the sharp decline in the forecast component of the survey
• U.S. dollar (DXY) extends gains despite disappointing data amid risk-off sentiment

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A common measure of US consumer attitudes worsened more than expected in April after a slight rebound at the end of the first quarter, a sign that Americans are beginning to take a more pessimistic view of the economy amid stubbornly high inflationary pressures, rising interest rates and rising recession risks.

According to the Conference Board, consumer confidence eased to 101.3 this month from a downwardly revised reading of 104.00 in March, below consensus estimates calling for a more modest decline to 104.5. When feelings run low, families tend to cut back on spending. This could become a problem for the economy, given that household consumption is the main driver of US GDP.

Source: Conference Board

Looking at the individual components of the survey, the Present Situation Index, based on an assessment of current business and employment conditions, rose slightly to 151.1 from 148.9 in the prior period, but the Expectations Index, which tracks short-term prospects for income, business environment and the labor market, fell to 68.1 from 68.1 from the previous period. 74.00.

Focusing on the expectations index, readings below the 80 level tend to be associated with a recession, so a reading of 68.1 is very worrying and indicates that the country may be heading for an economic contraction later this year, especially if spending begins to decline rapidly in the coming months.

After all, consumer confidence results indicate deteriorating economic conditions and cloudy skies loom on the horizon. This may prompt the Fed to adopt a less aggressive stance sooner than expected to contain downside risks from spread/verification.

In theory, the monetary policy pivot should be bearish for the US dollar unless market turmoil intensifies and sparks a flight to safety rings, in which case, the greenback will benefit. That seemed to be the case on Tuesday, as the US Dollar Index extended its gains after disappointing economic data.

USD (DXY) 5-minute chart

Source: TradingView