Sentiment is again turning against the Dollar

Outlook

We get the ISM manufacturing PMI this morning and it could be restored to its former glory as a sentiment-driver. In Oct, it fell to 48.7 from 49.1 in September for the 8^th month in a row of contraction. See the Trading Economics chart. We also get the final manufacturing PMI from S&P but traders prefer the ISM.

With the Fed’s December meeting a mere nine days away, note that the betting on a rate cut then is steady at 87.6%. We are getting more chatter about Trump nominating Hassett to take over from Powell as Fed chair, but a lot depends on what is actually said when the event does occur. We should likely make it Event, because if the world perceives White House interference in the Fed, it’s deeply US and dollar negative. A secondary effect is what Hassett actually says in the five months he is the “shadow chair.”

We get the ADP private sector payrolls and ISM services PMI on Wednesday, and Friday it’s the PCE.

Forecast

Sentiment is again turning against the dollar. As noted before, one reason the dollar did not fall further is the robust and resilient economy. Then we had a blank space with little data. Now the data flood is beginning again, it’s not good news. Eight months of falling manufacturing PMI is pretty bad and today is almost sure to deliver a ninth. We are not yet seeing the words stagflation and recession, but they are on the way.

The other big reason the dollar can resist a decline is that it’s the reserve currency, has the biggest stock and bond markets, etc. But the US also has an irrational, impulsive guy in the White House and he’s scaring the pants off everybody. Now that bitcoin has broken what some saw as support and seems headed for the crisis low (77,555 from April 7, tariff day), risk-off seems to be the theme of the day and that “should” favor the safe-haven dollar. Since it’s not doing that, we have heavy weights holding it down.