USD index drops to 2.5-week low on weak US PMI, home sales data

The dollar index declined 0.03% to a 2.5-week low as disappointing US economic data weighed on the greenback across major pairs. US Manufacturing PMI data came in below expectations, signaling continued contraction in the industrial sector and raising concerns about economic momentum. New home sales also missed forecasts, adding to worries about the housing market's resilience amid elevated interest rates. The dollar's weakness was compounded by improved prospects for an EU-US trade agreement, which boosted risk sentiment and supported the euro. EUR/USD gained approximately 0.2% to 1.0920, while GBP/USD advanced to 1.2950. Technical analysis shows the dollar index breaking below the 104.50 support level, with next support at 104.00. Traders are now reassessing Fed rate cut expectations, with markets pricing in increased likelihood of policy easing by Q3 2025 if economic weakness persists.