The US dollar is weakening against its currency peers to start the trading week. Driven by disappointing economic data and a central bank unlikely to cut interest rates at its policy meeting this week, the greenback is taking a hit as investors take a wait-and-see approach.
Manufacturing numbers have been mixed in the last week. On Tuesday, the New York Federal Reserve Bankâs Empire State manufacturing index plunged 26.4 points to -8.6 in June. This is a record decline and the worst reading since October 2016. The market had also anticipated a reading of 10. Anything below zero indicates a contraction in activity.
According to the FRBNY, there was sluggishness across the board. The new-orders index fell 21.7 points, shipments slipped 6.6 points, and unfilled orders tanked into negative territory. The only positive from the report was the index of future activity slipping just 4.9 points this month.
Last week, the US central bank reported that industrial production ticked 0.4% higher in May, manufacturing output edged up 0.2%, and business inventories rose 0.5%.
Because manufacturing data has been mostly positive, traders believe that the Fed will hold off on a rate cut for another month. This is supported by the CME Group FedWatch tool, which shows that most of the market expects a rate cut as early as next month.
The consensus is that if the Fed does institute another round of monetary easing, then it will lift stocks, but only if the economy really is going through a soft patch and not a full-blown contraction. With the US-China trade war lingering in the background and various data points not pleasing investors, there is talk of a recession on the horizon, which is why the White House is desperate for a rate cut with election season around the corner.
On tap for this week are housing numbers, the Philadelphia Fed Bank manufacturing index, and the Markit purchasing managersâ index (PMI) for June.
The USD/CAD currency pair rose 0.01% to 1.3416, from an opening of 1.3450, at 18:34 GMT on Monday. The EUR/USD increased 0.08% to 1.1220, from an opening of 1.1238.
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