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US Dollar Index Rises Despite Weak ISM Services Figure

US Dollar Index Rises Despite Weak ISM Services Figure

2019-12-04 16:30:00
Thomas Westwater, Contributor
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ISM SERVICES PMI TALKING POINTS:

  • The services sector fell for November with a reading of 53.9, downfrom last month’s reading of 54.7 and missing expectations of 54.5
  • Markets remain largely focused on US-China trade headlines as equity markets recover from the previous day’s selloff
  • DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

The Institute for Supply Managementreleased their report on the services sector Wednesday morning, with the headline figure printing 53.9 for November,down from last month’s reading of 54.7. Equity markets remain largely focused on US-China trade headlines and were unchanged as the report crossed the wires. However, the USD did briefly drop on the report but recovered quickly and gained ground following the reports release. The US Dollar did see noticeable weakness against the Canadian Dollar as the Bank of Canada’s interest rate decision was released at the same time, with the BOC keeping rates unchanged.

DXY Index (5-Min Chart)

DXY 5-Min Chart

The missWednesday morning in the services side of the economy is bolsteringongoing concerns of a spillover from the manufacturing sector which is now in its fourth month of contraction according to the counterpart ISM manufacturing sector index, despite durable goods orders strongly bouncing back in October, prompting speculation of recovery in the index.Still, the services sector remains above the 50.0 mark, indicating expansion, however the trend over the past year is negative and edges closer to contractionary territory.

ISM Services vs Manufacturing

While concerns surrounding the health of the US economy continue, the weakening in the services side of the economy is notable. When viewed together with the contraction in manufacturing, the expectations for growth going forward shift to a more pessimistic outlook. Downgrades to global growth for 2019 and 2020 continue to accelerate recessionary fears in the market, even as the recent lull in trade tensions saw US equity markets hit record highs. The Atlanta Fed GDPNow forecast for Q4,2019 was lowered to 1.3% on Monday, down from 1.7% last month.

3-month/10-year yield curve

Even as recessionary fears grip global market participants, the Federal Reserve has moved into a more hawkish stance over the month after three rate cuts this year. The Fed now appears to be waiting to view the impacts of these rates cuts as they expect a recovery in economic conditions. These expectations are reflected in the market as the yield curve spread between the 3-month and 10-year treasury yield moved out of inversion territory and has now steepened above 20%.

--Written by Thomas Westwater, Intern Analyst for DailyFX.com

Contact and follow Thomas on Twitter @FxWestwater

DailyFX forecasts on a variety of currencies such as the US Dollar or the Euro are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

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