After almost three weeks of steady but relentless selling which took its index against a basket of major currencies down from 93.80 on December 12th to a low on January 2nd of 91.44, the US Dollar finally found support in the Northern Hemisphere yesterday. It wasn’t just about the economic data (see below) as the USD turned higher before the latest US numbers were released. By the end of the London afternoon, however, the Dollar Index had moved up to a high of 91.88 and after the FOMC Minutes were published, it managed to push a little higher still.
We noted here yesterday that “the dollar is falling because it is falling.... The technical tail is wagging the fundamental dog.” Yesterday the dog regained the initiative and we’d note, too, that it marked exactly the one-year anniversary of the last major long-term USD turnaround on January 3rd 2017.
The solid economic news began with the December ISM manufacturing survey which rose to 59.7 from 58.2, above the consensus forecast for an unchanged 58.2. very encouragingly, the New Orders Index registered 69.4; an increase of 5.4 points from the November reading of 64.0. Comments from the panel reflected expanding business conditions, with new orders and production leading gains; employment expanding at a slower rate; order backlogs expanding at a faster rate; and export orders and imports continuing to grow in December.
Away from manufacturing, November construction spending rose a stronger than expected 0.8% after a +0.9% gain in October and was the fourth consecutive monthly increase. The November rise was led by a solid advance in homebuilding and a 4.8% post-hurricane leap in spending on home improvements. Non-residential construction rebounded 0.9% in November after declining four of the last five months, led by office building, which rose 5.5%.
Later in the US afternoon, the Minutes of the December FOMC Board Meeting were published. As ever, there’s something for everyone in these and you can always find a wide spread of views expressed. Some members said a faster trajectory of rate hikes may be needed whilst several officials were concerned by low inflation expectations. A couple were concerned by financial stability risks but most backed gradual rate hikes. The main takeaway, though, is that the two dissenters will not be voting members in 2018 and the market-derived probability of a March rate hike has gone up from 56% to 67%.
The US Dollar index opens in Asia this morning at 91.85; up around 40 pips from its recent low.