- The US Dollar sees Fed Chairman Powell’s overnight comments trigger a shift in US Dollar sentiment.
- In the Middle East, Israel has begun its ground offensive in Lebanon, increasing tensions in the region.
- Dollar Index hits seven-day high ahead of ISM manufacturing PMI data.
The US Dollar (USD) begins to gain speed and recovers on Tuesday ahead of the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) numbers. The positive change for the Dollar came after traders priced in fewer interest rate cuts by the Federal Reserve (Fed) following comments from Chairman Jerome Powell.
On the geopolitical front, Israel has begun its incursion into Israel in what it calls “a limited ground offensive,” the Financial Times reports. Any further escalation of violence in the region could trigger safe haven flows that generally tend to support the US dollar.
Looking at the economic calendar, the ISM manufacturing survey will be the main driver this Tuesday. Still, other elements will also grab some attention. The JOLTS Job Openings report will provide clues as to how labor demand is evolving, while traders’ eyes and ears will need to be tuned as five Fed members are scheduled to speak.
Daily Market Summary: Did the Fed See Stronger Data Coming?
- Fed Chairman Powell left some notable comments overnight. One of them was that the Fed is even considering data for its next policy meeting during its silent period. This will make markets even more reliant on data in the build-up to the event.
- Israel is carrying out a “targeted” ground offensive in Lebanon, while Hezbollah responds with artillery and rockets targeting Israeli soldiers near the city of Metula. Meanwhile, the United Arab Emirates has issued a statement expressing deep concerns about Israel’s ground operation, warning of the repercussions of this dangerous situation for the region, Bloomberg reports.
- At 13:45 GMT, the final reading of the S&P Global Manufacturing Purchasing Managers’ Index (PMI) for September will be released. Economists expect the number to remain unchanged from their preliminary estimate of 47.
- At 14:00 GMT, ISM Manufacturing PMI numbers for September will be released:
- The headline PMI is expected to rise slightly to 47.5 from 47.2 in the previous month.
- Among the major sub-indices, the Prices Paid component is expected to decline to 53.5 from 54, while the Employment Index is expected to rise to 47 from 46.
- Following the ISM, JOLTS job offers for August will also be published. Job openings are expected to remain stable at 7.67 billion compared to 7.673 million in July.
- Several Fed speakers will speak this Tuesday:
- At 15:00 GMT, Federal Reserve Bank of Atlanta President Raphael Bostic will deliver welcome remarks and moderate a conversation with Federal Reserve Board Governor Lisa Cook at the Technology Disruption conference in Atlanta.
- Around 22:15 GMT, Richmond Federal Reserve Bank President Thomas Barkin will participate in a panel discussion with Atlanta Fed President Raphael Bostic and Boston Fed President Susan Collins, at the Technological Disruption conference in Atlanta.
- European stocks are looking for direction, unsure whether a possible rate cut by the European Central Bank (ECB) in October should be seen as positive or perceived as a sign that activity in the eurozone is deteriorating rapidly. US futures are trading flat ahead of the US opening bell.
- The CME’s Fedwatch tool shows a 63.0% probability of a 25 basis point rate cut at the next Fed meeting on November 7, while 37.0% are pricing in another 50 basis point rate cut basics.
- The US 10-year benchmark rate is trading at 3.73%, looking to test the three-week high at 3.81%.
Technical Analysis of the Dollar Index: Moving through the markets like the old days
The US Dollar Index (DXY) is getting help from Fed Chair Jerome Powell, whose comments have eased market expectations of another big rate cut for the next rate decision in November. Lower odds of a larger cut support the US Dollar as it undercuts the performance of other currencies in the DXY basket, such as the Euro (EUR). Markets are increasingly pricing in that the European Central Bank (ECB) could be ready to deliver a surprise rate cut in October, widening the rate differential in favor of a stronger US dollar.
The recovery appears to be fierce with the DXY already surpassing four previous daily highs during Asian trading on Tuesday. In case the dollar bulls can turn even further, look at the resistance level at 101.90 to the upside. Just above there, the 55-day SMA at 102.22 will come into play.
To the downside, 100.62 is moving back from resistance to support, should DXY close above this level this Tuesday. The new 2024 low is at 100.16, so a test will be done before any further decline occurs. Further down, and that means giving up the big 100.00 level, the July 14, 2023 low at 99.58 comes into play.
Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and, therefore, a key factor in the valuation of currencies. A high level of employment, or a low level of unemployment, has positive implications for consumer spending and therefore economic growth, boosting the value of the local currency. On the other hand, a very tight labor market – a situation in which there is a shortage of workers to fill vacant positions – can also have implications on inflation levels and, therefore, on monetary policy, since a supply of labor Low labor and high demand lead to higher wages.
The pace at which wages grow in an economy is key for policymakers. High wage growth means that households have more money to spend, which often translates into higher prices for consumer goods. Unlike more volatile sources of inflation, such as energy prices, wage growth is considered a key component of underlying and persistent inflation, as wage increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding their monetary policy.
The weight each central bank assigns to labor market conditions depends on its objectives. Some central banks have mandates explicitly related to the labor market beyond controlling inflation levels. The United States Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the only mandate of the European Central Bank (ECB) is to keep inflation under control. Even so, and despite the mandates they have, labor market conditions are an important factor for authorities given their importance as an indicator of the health of the economy and their direct relationship with inflation.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
