The US dollar plummeted against some of its major currency rivals to kick off the trading week, fueled by a mix of disappointing economic and rally equities. The greenback is coming off a weekly gain of about 1%, but the future of the buck remains uncertain ahead of tightening monetary policy and inflation woes.
On Monday, the IHS Markit manufacturing purchasing managers’ index (PMI) clocked in at 61.2 in August, down from the 63.4 increase in July. This fell short of the median estimate of 62.5. The services PMI totaled 55.2, coming under the market forecast of 59.5. The composite PMI also declined to 55.4, below the consensus of 59.9.
All three PMI readings showed essentially the same trends. August had been the slowest growth in activity in several months. Output growth became sluggish during the dog days of summer. Input and output price inflation were the fastest on record.
Despite the concerning developments, business expectations were upbeat.
According to the National Association of Realtors (NAR), existing-home sales advanced 2% month-over-month in July to 5.99 million. This is above the market forecasts of 5.83 million. Total US housing inventories were up 7.3% from June to 1.32 million units, but this is down 12% from the same time a year ago.
Meanwhile, the Federal Reserve Bank of Chicago’s National Activity Index rose to 0.53 in July, up from -0.01 in June.
This week, the US central bank will hold its annual Jackson Hole retreat, where investors are hoping Fed Chair Jerome Powell will provide more insight into the institution’s plans to tape its ultra-aggressive $120-billion-a-month quantitative easing program. That said, financial analysts say that it is unlikely going to be a “taper tantrum” comparable to what unfolded in 2013, noticeable in the higher stock indices.
“Today is about a little risk-on rebound. You have almost every risky asset rally here,” Edward Moya, senior market analyst at foreign exchange brokerage OANDA in New York. “Despite the inevitable announcement of tapering at some point this year, it’s going to be very slow and it’s not going to signal any imminent rate hikes at the end of next year.”
The US Treasury market was mixed to start the trading week, with the 10-year yield down 0.005% to 1.255%. The one-year bill edged up 0.003% to 0.066%, while the 30-year bond rose 0.001% to 1.874%.
The US Dollar Index (DXY), which gauges the greenback against a basket of currencies, plunged 0.54% to 92.99, from an opening of 93.48. The index is up 3.4% year-to-date.
The USD/CAD currency pair cratered 1.46% to 1.2649, from an opening of 1.2772%, at 19:01 GMT on Monday. The EUR/USD was flat at 1.1747.