The US dollar surged toward the end of the trading week as debt ceiling uncertainty, tepid financial markets, and shifting expectations that the Federal Reserve may tighten further supported the greenback. But can the buck maintain its strength heading into next month’s Federal Open Market Committee (FOMC) policy meeting? In the meantime, investors will comb through the data.
The Conference Board’s Leading Economic Index (LEI), a chief recession indicator, tumbled 0.6% in April, leaving the LEI down 4.4% over the six-month period between October and April. This was worse than the previous six-month contraction of 3.8%.
Despite the improvement from the 1.2% decline in March, the LEI is “signaling a worsening economic outlook,” says Justyna Zabinska-La Monica, the senior manager of business cycle indicators at The Conference Board.
“Weaknesses among underlying components were widespread—but less so than in March’s reading, which resulted in a smaller decline. Only stock prices and manufacturers’ new orders for both capital and consumer goods improved in April. Importantly, the LEI continues to warn of an economic downturn this year. The Conference Board forecasts a contraction of economic activity starting in Q2 leading to a mild recession by mid-2023,” Monica said in the report.
In a sign that the recession in manufacturing persists, the Philadelphia Fed Bank’s Manufacturing Index remained in contraction territory at -10.4 in May. Business conditions, employment, and new orders slumped. Input prices also surged this month. Although it was an abysmal print, the index was an improvement from the -31.3 print in April and came in higher than the consensus estimate of -19.8.
On the labor front, initial jobless claims clocked in at 242,000 for the week ending May 13, down from 264,000 in the previous week, according to the Department of Labor. This was also lower than the market forecast of 254,000. Continuing jobless claims fell below 1.8 million, while the four-week average, which strips the week-to-week volatility, edged lower to 244,250.
The real estate data put the housing rebound on the sidelines. Existing home sales tumbled 3.4% in April, down from the 2.6% drop in May, totaling 4.28 million units. This was worse than the expectation of -1%.
The US Treasury market was mostly up across the board, with the benchmark ten-year yield up 5.9 basis points to 3.64%. The one-year bill shed 7.8 basis points to 5.004%, while the 30-year bond added 1.8 basis points to 3.896%.
The US Dollar Index (DXY), a gauge of the greenback against a basket of currencies, soared 0.71% to 103.61, from an opening of 102.88. The index is poised for a weekly gain of about 1.5%, erasing its year-to-date losses.
The USD/CAD currency pair jumped 0.46% to 1.3519, from an opening of 1.3457, at 17:39 GMT on Thursday. The EUR/USD declined 0.68% to 1.0766, from an opening of 1.0840.