US Dollar strengthens after PMI report

The US Dollar is seeing an increase in trading for the week following the release of Purchase Managers Index (PMI) numbers in the United States that outpaced the European PMI’s. The US Dollar index is trading in the green and is likely to secure a third consecutive week of gains. The upbeat economic data has caused the US Dollar to surge, especially against the Japanese Yen, reaching 159.00 at USD/JPY. However, tech giant Nvidia experienced a decline of over 3% and lost $91 billion in market value at the US closing bell.
Following the release of various economic data components for the week, it is evident that the housing market is showing signs of easing, while other US data, including the PMI’s, are not showing exceptional performance. Despite this, the Services PMI came in line with the highest estimate from economists’ surveys.
In response to the positive US PMI release, Japan’s Ministry of Finance expressed readiness to take appropriate action on foreign exchange when necessary. This led to the US Dollar rising back up to 159 against the Japanese Yen. Additionally, preliminary PMI data for France, Germany, and the Eurozone showed worse-than-expected numbers, causing the Euro to weaken further against the US Dollar, dropping below 1.07.
Equities remain in negative territory on Friday despite the US PMI numbers. The CME Fedwatch futures for September are indicating a rate cut probability of 57.9% for a 25 basis point cut, while the US 10-year benchmark rate is trading at 4.25, remaining within this week’s range.
The US Dollar Index (DXY) is expected to record a third consecutive week of gains. The Greenback has not performed well this week but is likely to secure a win due to factors like the weak Japanese Yen, political issues in France, and contracting PMIs in Europe. Traders are advised to watch levels such as 105.88 and 106.51 on the upside, with support levels at 105.52 and the Simple Moving Averages (SMA) at 105.14, 104.61, and 104.48.
Furthermore, the Banking Crisis of March 2023 had a significant impact on the US Dollar and Gold. The crisis was triggered by the insolvency of US-based banks with exposure to the tech sector and crypto, leading to a run on Silicon Valley Bank and other institutions. As a result, expectations about the future course of interest rates changed, causing a decline in the US Dollar. However, Gold benefited as a safe-haven asset and due to reduced interest rate expectations, leading to an increase in its value priced against the US Dollar (XAU/USD).