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US Dollar Softens After Weak US Business Activity Data Raises Chances of Recession – By ASC


US PMI MAIN CONTENTS:

  • The US Composite PMI fell to 51.2 in June from 53.6 in May, hitting a five -month low
  • Flash Services Business Activity was at 51.6 from 53.4 previously, also the lowest in five months. Meanwhile, the Manufacturing PMI slumped to 52.4 from 57 a month ago, its worst reading in 23 months.
  • The growth of anemia indicates the U.S. economy failed to rebound significantly in the second quarter and a recession is likely to arrive.

Most Read: EUR/USD Tanks as PMI Surprising Signals Increased Recession Risk

AS economy activity continued to decline at the end of the second quarter, weighted by as high as the sky price pressures and weakened demand requirement. According to S&P Global, the Flash composite Purchasing Manager Indexwhich combines manufacturing and service production data, decreased to 51.2 in June of 53.6 last month, reached its lowest level since the beginning of the year when the omicron variant brought the recovery to a halt. Any number above 50 indicates an expansion while a reading below that level indicates a contraction.

Looking internally, the services PMI fell to 51.6 from 53.4 in May, a disappointing expectation that required a modest increase to 53.5. The manufacturing PMI, for its part, slipped to a 23 -month low of 52.4 from 57, well below the consensus forecast (see below).

DAILYFX ECONOMIC CALENDAR

Source: DailyFX Calendar

While both the manufacturing and services sectors managed to expand this month, the rate of expansion slowed sharply, raising serious concerns about the health of the economy and the possibility recession in the medium term.

The U.S. dollar, measured by the DXY index, erased gains and briefly slipped into territory after S&P Global Purchasing Managers Index data crossed the wire, deepening its decline in recent days. The reversal has coincided with a pullback in US Treasury rates, with 2-year yields and 10-year yields trading at 2.95% and 3.04%, down about 50 basis points from last week’s cyclical highs.

While expectations may change, yields have re -priced lower over that concern The US economy may be heading for a downturn in the middle tightening the financial situation.The Fed waited too long to start shifting accommodation to be addressed rampant inflation and is now trying to lead rate hikes in the most aggressive movement since Paul Volcker led the bank in the 1980s, raise the possibility of a self -caused crisis.

US DOLLAR REACTION

US Dollar Index Chart

Source: TradingView

Concerns have risen after Fed Chairman Powell acknowledged that the FOMC is in power action can triggered a recessionsay such a scenario is possible and characterize a soft landing as “very challenging” in the current environment. So it is no surprise that the market has begun to reduce its bets on future monetary tightening. For example, traders are now setting prices at a terminal rate of 3.41% for next year according to Fed funds futures, down from 4.15% a week ago, a reversal of 74 basis points in less than 10 days.

Fed Funds Futures Implied Rate (May 2023)

US Dollar Softens After Weak US Business Activity Data Raises Chances of Recession

Source: TradingView

Today’s PMI report confirms that US economic activity is declining rapidly. This situation could prompt investors to bet that the Fed will flash and will not deliver on its promise to forcibly raise borrowing costs after 2022, paving the way for U.S. yields to move lower. This scenario could hurt the US dollar in the coming months provided that panic and extreme risk aversion sentiment do not erupt in financial markets.

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— Written by Diego Colman, Market Strategy Specialist for DailyFX

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