USD/JPY drops below 108 after disappointing US PMI data
|- Business activity in the manufacturing sector continues to contract in the United States (US).
- The US Dollar Index retraces daily rally after the disappointing data.
- Major equity indexes in the US erase early gains.
After climbing to its highest level in two weeks at 108.46, the USD/JPY pair made a sharp U-turn in the last hour and fell into the negative territory on the daily chart after the uninspiring data from the United States weighed on the Greenback. As of writing, the pair was down 0.12% on the day at 107.94.
Dismal data hurt the USD
Although the Manufacturing Purchasing Managers' Index (PMI) report published by the IHS Markit on Tuesday showed that the economic activity in the US manufacturing sector expanded at a modest pace in September, the more-relevant Institue for Supply Management's (ISM) PMI reading painted a gloomy picture for the sector.
The ISM's Manufacturing PMI in September dropped to 47.8 from 49.1 in August and missed the market expectation of 50.1 to revive recession fears.
Commenting on the data, "The ISM manufacturing index has dropped to a 10-year low as trade worries, weak global growth and a strong dollar weigh on the sector," said ING analysts.
"Given the threat of contagion to other parts of the economy further Fed rate cuts are coming"
With the initial market reaction, the US Dollar Index, which touched its highest level in 28 months at 98.67 on Tuesday, retraced its daily rally and was last seen at 99.39, where it was virtually unchanged on a daily basis.
On Wednesday, Consumer Confidence Index data from Japan will be looked upon for fresh impetus.
Technical levels to watch for
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