Near recent lows, the US dollar has been stubbornly stable against almost all G10 currencies. In the most recent trading session, the USD strengthened by 0.19% vs euro. As of writing, the EUR/USD is hovering around 1.1525 after rebounding from an intra-day low of 1.1505. This stability is all the more remarkable given the grim recent U.S. manufacturing data, which has experts worried about recession, reflecting a weakening industrial economy.
USD has appreciated substantially against a broad swath of the world’s major currencies. It rose 0.14% vs the British pound, 0.09% vs the Japanese yen and 0.44% vs the Canadian dollar. The dollar is up 0.28% against the Australian dollar. It has further advanced 0.33% versus the New Zealand dollar and 0.39% versus the Swiss franc. US Dollar Index (DXY) is currently floating around 99.81. This indicates a generally positive and at times very bullish outlook for the dollar.
Despite these gains, recent national data on the manufacturing sector show that the sector is contracting. Timothy Fiore stated, “US manufacturing activity contracted at a faster rate, with contractions in production and inventories leading the decline.” This contraction raises some disturbing questions. How do we continue incredible economic growth at the same time price pressures are building and inventories are bloating?
The Eurozone is experiencing a different situation, with the Manufacturing Purchasing Managers’ Index (PMI) confirmed at 50 for October, slightly above September’s reading of 49.8. This indicates that although growth is at a standstill, it is not in sharp decline. Chief Business Economist Chris Williamson noted, “the surge in inventories and still-elevated price pressures raise questions about the sustainability of the recent upturn.”
Federal Reserve Chair Jerome Powell has indicated caution regarding future monetary easing. He stressed that more easing this year is “not a foregone conclusion.” This is a welcome sign of caution as policymakers rightly assess the state of the economy. Strong domestic demand with mixed economic signals helping to support the dollar, strong domestic demand continues to be a pillar of investor confidence.