Daily Market Pulse

US ISM Manufacturing PMI takes centre stage as the dollar consolidates

4 minute read


US Consumer Confidence slipped to 102.90 (from 106.0), confirming the second successive monthly decline and missing an expected increase to around 108.5. Look a little deeper under the hood, and the news was not all bad, as consumers maintained an optimistic outlook on the labor market, which is no surprise given the recent headline payroll gains. That overall decline probably helped to drag the dollar lower on the session, however, which has continued with another 0.5% dip for the key dollar index (DXY) so far this morning. Today is all about the latest US ISM Manufacturing PMI, which is expected to increase from 47.4 to 48, with increases also earmarked for the New Orders and Employment components of this key index.



Having been on a near one-way bet southwards as the dollar dominated proceedings, EUR/USD has found some worthy support since the beginning of this week, with the pair rising well over 1%. With inflation on the rise again in France and Spain, ECB rhetoric has also turned more hawkish, increasing the probably of a more aggressive rate hiking path from the central bank. Just this morning, ECB policymaker Joachim Nagel reiterated that further significant rate hikes beyond march may be needed. Ongoing comments such as these will undoubtedly help to support the single currency.



The recent rally for the pound since the beginning of the week came to an abrupt halt over the past day, with the latest comments from the BoE’s Bailey, combined with some soft-looking house price data, playing a key part in limiting any upside potential for GBP/USD and GBP/EUR. Bailey said that markets have been wrong in their increasing perception that the BoE will need to impose many more rate hikes in order to tame inflation. Market-implied expectations had steadily increased for a BoE terminal rate of 4.25% to 4.75%. Despite this, volatility amongst sterling crosses remains elevated, with GBP/USD still trading around 1% higher than the weekly low.



Whilst the Fed-BoJ interest rate policy divergence continues to play a bigger part in supporting USD/JPY, than the ongoing 10-year JGB yield – which remains anchored above 0.5%, the recent decline for the greenback over the past day has helped to ensure that USD/JPY is now back probing the weekly lows, with the pair declining by a sharp 0.75% so far today.



Weaker Canadian growth has helped to drive the Loonie lower over the past day, despite oil prices trending higher over that period. Canadian GDP flatlined during Q4, with markets having expected a much more robust 1.5% growth over the period. In our opinion, that news has helped to somewhat justify the BoC’s recent decision to pause hiking rates. It has been a far more productive session for the Loonie (so far), with the Loonie joining other currencies in marking worthy gains against the greenback this morning.



With the greenback surrendering gains across the board, USD/MXN has been free to mark another cycle low (MXN high). USD/MXN is now down a total 0.75% over the past two days, with further losses for the greenback likely to push that decline even further.


USD/BRL is in a different pace, and continues to mark steady dollar gains, with another 0.5% posted so far, as the BRL slips towards the weekly low. 


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