Dollar Reverses Some Recent Gains Ahead of PMI Data

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Dollar Reverses Some Recent Gains Ahead of PMI Data

AUGUST 23, 2021

After rallying all last week, the U.S. dollar has given up some of those gains to start the week. 

Overview

Global risk sentiment has reversed 180 degrees as global markets are rallying to start the week with considerable gains in Asian markets.  American futures point to a solid open, putting modest downward pressure on the safe-haven greenback.

U.S. Purchasing Managers’ Index data will hit the wire at 9:45 a.m. and is expected to show a modest slowdown in growth after a quick start to the summer. Other data include the Chicago Fed National Activity Index at 8:30 and existing home sales at 10 a.m.

There is plenty more data on this week’s schedule including GDP on Thursday and personal income and spending on Friday.  However, the marquee event will be Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday.  Last year, the Fed announced big changes in how they look at monetary policy including saying that they would be ok with inflation overshooting their target in deference to getting more Americans back in the workforce.

Many expect fireworks again this year and hope that the central bank will give more guidance as to when the FOMC will likely start removing its monetary stimulus.

It is also worth noting that former Fed chief and current Secretary of Treasury Janet Yellen has endorsed Jerome Powell for a second term.  Markets will like a return of Jerome Powell as markets tend to dislike change or uncertainty.

What to Watch Today…

  • Purchasing Managers’ Index at 9:45 a.m.

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EUR  

After falling much of last week, the Euro is staging a modest comeback to open the week.  Purchasing Managers’ Index data showed that the euro area’s service sector is exceeding that of the manufacturing sector for the first time since the beginning of the pandemic.   Service sector PMI remained near a 15-year high.

EUR/USD is also enjoying a minor reversal of recent U.S. dollar strength as global markets regain some of their losses from last week.

GBP  

The British pound has gained half a percent against the U.S. dollar despite disappointing local data. The move is likely a reversal of the recent dollar rally than renewed strength in the sterling.  British service PMI underwhelmed and grew at the slowest pace since February when Britain was in lockdown.

While the U.K.  has removed all restrictions, businesses are still struggling.  The survey showed that companies blamed a shortage of staff and materials a record 14 times more than the normal level.

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