US yields and the dollar have responded in a big way to strong US data that continues to defy logic. Talk of cautiousness and data dependency may fuel USD upside
The dollar is slightly softer at the time of writing but is coming off a massive two-day advance after Friday’s non-farm payroll report revealed a significant beat to the upside. The labour market not only looks robust but appears to be in the ascendancy after the December figure received a massive revision higher.
, appeared via the ISM services PMI readings below. The headline reading beat the forecast of 52 as well as the prior 50.5, continuing the expansion in the services sector for 13 straight months now.’ and ‘imports’ which all saw notable improvements. New orders is often used as a proxy for future economic conditions and the increase in prices suggests increased costs of shipping in the Red Sea is being passed down to the consumer. Imports posted the largest month on month percentage change of all the categories and suggests consumption and spending are strong. In addition, a lesser observed report called the Senior Loan Officer Survey revealed that credit providers are less reluctant to extend credit while demand for credit made marginal progress. The report was a main focus around the time of the regional banking instability and has come back onto the radar again after New York Community Bancorp had to cut its dividend – sending other regional bank shares lower with it. The above data is not consistent with an economy that ought to be constrained by elevated interest rates – suggesting that the start of rate cuts may need to be pushed back even further. As such, US yields and the dollar have risen in recent sessions.) is viewed as a benchmark of broader dollar performance and witnessed massive gains on Friday which continued into Monday. Today however, prices have eased back a tad, ahead of the 104.70 level which has acted as support in September and November 2023. The Fed’s very own Neel Kashkari seemed surprised at the US economy’s strength, suggesting that the current level of interest rates is not having as much of an impact as would typically be the case if the neutral rate hadn’t been shifted higher. The neutral rate is a theoretical rate that is neither restrictive of supportive to the economy and is said to be higher in the post-remains above the 200-day simple moving average and could continue with the help of additional Fed speakers who are lined up today to provide their thoughts on monetary policy and interest rates. Further talk about the impressive economic data and the need to move cautiously before deciding to cut rates could add to the recent USD advance.Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Information presented by DailyFX Limited should be construed as market commentary, merely observing economical, political and market conditions. This information is made available for informational purposes only. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material.