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The US dollar fell after weak US business data, which raised the possibility of a recession -by Ecork

Key Points of the US PMI:

  • The US composite PMI fell to 51.2 in June from 53.6 in May, hitting a five-month low.
  • Flash services business activity is at 51.6 from 53.4 previously, which is also a five-month low. Meanwhile, the manufacturing PMI fell to 52.4 from 57 a month ago, its worst reading in 23 months.
  • Weak growth indicates that the US economy failed to recover significantly during the second quarter and that a recession may be around the corner

Most Read: EUR/USD Shocking PMIs point to high risk of recession

we economic Activity It continued to slow down at the end of the second quarterAnd the Lost weight by the sky is high Price pressures and double the demand Circumstances. According to S&P Global, its Flash compound Purchasing Managers Indexwhich combines manufacturing and service production data, fell to 51.2 in June From 53.6 last monthAnd the It reached its lowest level since the beginning of the year when the omicron variant brought recovery to a halt completely. Any number above 50 indicates expansion while readings below this level indicate contraction.

Looking at the internal data, the services PMI fell to 51.6 from 53.4 in May, disappointing expectations that called for a modest increase to 53.5. For its part, the manufacturing PMI fell to a 23-month low of 52.4 from 57, well below expectations (see below).

DAILYFX Economic Calendar

Source: DailyFX Calendar

Although the manufacturing and services sectors managed to grow this month, the pace of expansion has slowed significantly, raising serious concerns about the health of the economy and the possibility of an outbreak. Recession in the medium term.

The US dollar, as measured by the DXY index, erased its gains and briefly retreated into the region after data from the S&P Global Buying Managers index crossed the wires, deepening its decline in recent days. The reversal coincided with lower US Treasury rates, with both the 2-year and 10-year yields trading at a respectable 2.95% and 3.04%, down nearly 50 basis points from last week’s session highs.

Although expectations may change, yields have been priced lower amid concerns that The US economy may be heading for recession amid Tightening of financial conditions.The Fed has waited too long to start removing the easing that needs to be addressed rampant Inflation is now trying to raise interest rates from the front in the most aggressive move since Paul Volcker led the bank in the 1980s, reinforced The possibility of a self-made crisis.

US dollar reaction

US dollar index chart

source: TradingView

Concern increased after Fed Chairman Powell admitted that the FOMC is strong Procedures could cause stagnationHe said such a scenario is possible and described a soft landing as “extremely difficult” in the current environment. Then it is not surprising that the market began to lower the bets on monetary tightening in the future. For example, traders are now pricing in a final price of 3.41% for next year on Fed Fund futures, down from 4.15% a week ago, with a reversal of 74 basis points in less than 10 days.

Implied Fed Funds Futures Price (May 2023)

The US dollar fell after weak US business data, which raised the possibility of a recession

source: TradingView

Today’s PMI reports confirm that US economic activity is slowing rapidly. This stance could lead investors to bet that the Fed will blink and not deliver on its promise to aggressively raise borrowing costs beyond 2022, paving the way for lower US yields. This scenario could undermine the US dollar in the coming months provided panic and extreme risk-off sentiment does not spread in the financial markets.

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— By Diego Coleman, Market Strategist, DailyFX

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