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US Dollar Rallies After October ISM Manufacturing Hits 30-month High

US Dollar Rallies After October ISM Manufacturing Hits 30-month High

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- ISM Manufacturing beats expectations, climbs to highest level since April 2011.

- US government shutdown does little to impact manufacturing sentiment.

- US yields continue to climb, supporting the buck across the majors.

The US government shutdown certainly impacted consumer confidence, but the manufacturing sector didn’t seem to mind the two-weeks of tense fiscal negotiations. In fact, with the ISM Manufacturing report climbing to 56.4 in October, the once-important sector (now accounting for approximately 15% of GDP) of the economy may be signaling that things ‘aren’t so bad.’

Interest rates moved in favor of the US Dollar following the data, perhaps a sign that investors believe the data fits in with the Federal Reserve tapering QE3 in December. The US Treasury 10-year note yield increased from 2.760% ahead of the release to as high as 2.605%; the yield was well-supported off the weekly low at 2.471%.

Here’s the data lifting the US Dollar:

- ISM Manufacturing (OCT): 56.4 versus 55.0 expected, from 56.2.- ISM Prices Paid (OCT): 55.5 versus 55.0 expected, from 56.5.

USDJPY 1-minute Chart: November 1, 2013 Intraday

US_Dollar_Rallies_After_October_ISM_Manufacturing_Hits_30-month_High_body_x0000_i1027.png, US Dollar Rallies After October ISM Manufacturing Hits 30-month High

Charts Created using Marketscopeprepared by Christopher Vecchio

The US Dollar continued its gains against the recently downtrodden British Pound and Euro following the release, setting fresh weekly highs against the two at $1.5932 and $1.3482 respectively. However, in the wake of the Fed’s rate decision this week, the USDJPY has become the most interesting pair to watch given its relationship with US yields.

Accordingly, with US yields spiking higher after today’s data, the USDJPY climbed from ¥98.46 to as high as 98.85, a fresh weekly high and near its October high, set on October 17 at 99.00.

--- Written by Christopher Vecchio, Currency Analyst

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