Global overview
The greenback reversed from six-week highs overnight as a sharp drop in the US’s PMI numbers sparked worries about a slowdown in the US economy. However, equity markets jumped on the news, hopeful the data means the Federal Reserve is near the end of its tightening cycle. The Aussie was the largest beneficiary with the AUD/USD up 0.9%.
USD lower after PMIs
The US dollar was sharply lower overnight after a weaker than expected reading from the US purchasing manager indexes weighed on the world’s most traded currency.
The US dollar has been recently supported as the US economy outperformed other major economies despite over 500 basis points of rate hikes over the last 18 months.
However, last night’s PMI numbers saw a sharp drop in activity with the manufacturing PMI at 47.0 (versus 49.3 forecast) with all sub-sectors now below 50.0. A number below 50 signals a sector in economic contraction. Services was also below expectations at 51.0 (versus 52.2 forecast).
The weaker PMI numbers caused markets to be less fearful of further potential Federal Reserve rate hikes with market pricing now seeing only a 14% chance of a hike at the Fed’s September meeting (source: Refinitiv).
US equities jumped higher with the S&P 500 up 1.1% and the Nasdaq up 1.6%.
The US dollar fell with the AUD/USD up 0.9%, the NZD/USD up 0.6% and the USD/CNH falling 0.3%.
Euro under pressure
Otherwise, global PMIs yesterday continued to paint a picture of a rapidly deteriorating economy.
Most notably, German numbers continue to spark concern, with manufacturing near its pandemic lows at 39.1 while the services sector saw a sharp contraction falling from 48.5 last month to 47.3
With French PMI also weaker overnight, the outlook for Europe is now grimmer, with the euro weakening over the last few days. The EUR/USD hit two-month lows overnight before later recovering.
Jackson Hole in focus
Tonight, all eyes turn to the US’s Jackson Hole Symposium.
With the US dollar recently weakening after a 4.5% rally in the USD index since mid-July, commentary from Federal Reserve chair Jerome Powell will be seen as crucial, and could drive further USD weakness.
This year’s theme is “Structural Shifts in the Global Economy” with the agenda to be released later today.
Powell is due to speak on Friday night APAC time.
Aussie sparks rebound
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 21 – 26 August
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
