US stronger as Services PMI jumps back up from earlier decline
|Most Recent Article: US Dollar trims losses on Friday but closes its weakest week since November
- The US Dollar devalued nearly 2% since Wednesday against most peers.
- Traders could see a small turnaround on the back of PMI data.
- The US Dollar Index trades above 102, away from the four-month-low earlier.
The US Dollar (USD) got struck by lightning on Wednesday during the last US Federal Reserve (Fed) rate decision for 2023. The Greenback did not get any relief on Thursday either after the European Central Bank (ECB) sent another batch of lightning strikes towards the Greenback. The fact that the Fed has openly committed to rate cuts in 2024, while the ECB kept its lips sealed and even said rate cuts were not even discussed, means a seismic shift in monetary policy between the two continents on either side of the Atlantic Ocean.
On the economic front, the much battered Greenback is getting some revitalisation from upbeat numbers on the Purchase Managers Index. Specially the upbeat Services number is a number in favor for a stronger US Dollar. It paints a very clear contrast with the French Services PMI numbers that sinked lower this Friday morning.
Daily digest: US Services PMI upbeat
- The New York Empire State Manufacturing Index for December went from a previous 9.1 to -14.5.
- The US Capacity Utilization and Industrial Production data for November got released: Capacity Utilization went from 78.8% to 78.8%. Industrial Production went from -0.8% to a positive 0.2%.
- Just ahead of the US opening bell, traders braced for the Preliminary Purchasing Managers Index numbers.
- Manufacturing PMI for December went from 49.4 to 48.2.
- Services PMI for December headed from 50.8 to 51.3.
- After the sluggish end for US equities on Thursday, Asian equities are roaring, with Hong Kong’s Hang Seng leading by 2.50%. European and US equities are sinking lower just an hour into the US trading session.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 85.5% chance that the Federal Reserve will keep interest rates unchanged at its January 31 meeting. Around 14.5% expect the first cut already to take place.
- The benchmark 10-year US Treasury Note trades near 3.92%, the lowest in over four months.
US Dollar Index technical analysis: PMI provides some counterweight
The US Dollar has had a melt down when looking at the past two performances, with at one point more than 2% losses in the US Dollar Index. The Fed has put its cards on the table with its Dot Plot projections, forced to show its hand as it would lose credibility if it didn’t. Look for European data to deteriorate further, should the ECB truly commit to keep rates unchanged throughout 2024, while the Fed is ready to provide oxygen to its economy, which investors will applaud in the long run.
The DXY US Dollar Index is facing a tough recovery with several resistances added in its downturn this week. First level to try and recover is 102.44, the low of November 29th. If US Dollar bulls are able to close and open above that level, and preferably even test the level for support, the next upside level to watch is 102.95 (ahead of 103.00) and 103.51 at the 200-day Simple Moving Average.
To the downside, the DXY is positioned near the next pivotal 101.70, the low of August 04 and 10. Once broken, look for 100.82 to try and catch the falling knife with the bottoms from February and April. Should that snap, nothing will stand in the way of DXY heading to the sub 100 region.
Dot Plot FAQs
What is the Federal Reserve “Dot Plot”?
The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.
When does the Federal Reserve publish the “Dot Plot”?
The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.
Why is the “Dot Plot” important for markets?
The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.
How does data in the “Dot Plot” affect the US Dollar?
The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.
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