Article / 01 September 2016 at 23:14 GMT

US Market Wrap: US dollar hit by ISM manufacturing contraction

FX Consultant / IFXA Ltd

Nothing of note

US data released
  • Challenger job cuts August (Actual 32,188 vs previous 45,346)
  • Jobless claims (263,000 vs forecast 265,000)
  • ISM Manufacturing PMI August (Actual 49.4 vs forecast 52.0)
  • Markit Manufacturing PMI August (Actual 52.0 vs forecast 52.1)
The FX universe was unfolding as it should when New York started the day. The US dollar was strengthening against the majors on anticipation of strong US data reinforcing the case for a US Federal Reserve rate hike, although Sterling was an anomaly. Better than expected Markit PMI data sent GBPUSD soaring. In hindsight, that may have been an omen.

Initially, the US data releases, (Challenger job cuts and Jobless Claims) were seen as positives and provided a bit of support for the US dollar. Then things got nasty. The ISM Manufacturing PMI didn’t just miss, it dropped into “contraction” territory (under 50).

The US dollar tanked. EURUSD leapt to 1.1205 from 1.1128 while USDJPY dropped to 103.11 from 104.00. The dollar ended the session in the red against the G10 currencies.

It is rather interesting to note that the Markit Manufacturing PMI data for the UK is considered valid enough to trigger a massive GBPUSD rally, but the US Markit PMI data is totally ignored by traders.

Oil prices declined for the fourth day in a row and even today’s US dollar retreat wasn’t enough to provide much support. WTI opened in New York at $44.70 and dropped to $43.00 by mid-afternoon before drifting higher into the close. This week's reports of rising crude inventories in the US and scepticism around talk of an Opec agreement in Algiers is behind the move.

US equity traders didn’t appear to be concerned with either the drop in crude prices or the weak ISM PMI data. In fact, they just didn’t seem to care ahead of Friday’s non-farm payrolls report.


Russia has not quite avoided the "August curse" according to TradingFloor contributor Nadia Kazanova in: August curse hits Russia's political credibility

 US equity traders didn’t appear to be concerned with the weak ISM PMI data.  Photo: iStock

– Edited by Susan McDonald

Michael O'Neill is an FX consultant at IFXA Ltd. Follow Mike or post your comment below to
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