US Dollar Kicks Off The Week On A Gloomy Note Following Report Of Declining Manufacturing Activity
The US dollar started the week on a bearish trend following the release of a report which revealed that manufacturing activities declined to their lowest point since 2016.
Prior to the news, the dollar had been hovering near its two-week high, which had achieved earlier on Monday’s trading session on the heels of the Federal Reserve’s upcoming meetings. Although the USD experienced a decline, many other currencies remained strong pending the Fed meetings.
The data released on Monday revealed that manufacturing activity contracted in the New York region over the past two and a half years. The report plus the rising unemployment levels and weak inflation data put more pressure on the Fed, thus increasing the chances of interest rate cuts before the end of 2019.
US dollar previously held steady
The US dollar had previously demonstrated a steady performance on Monday in anticipation of the Fed meetings. However, there was some volatility, especially due to the conservative approach by investors as they wait to see how things will play out later on in the week.
The Fed is expected to hold meetings on Tuesday and Wednesday although there are no rate cut expectations. Analysts expect rate cuts to start happening in July, which is just a few weeks away.
Meanwhile, it also looks like the unappealing manufacturing report negatively affected the performance of the US dollar index. The latter is used as a yardstick to determine the strength of the USD against half a dozen major currencies.
Euro grows stronger against the US dollar
The US dollar index dropped to 97.39 by 2:25 P.M. The weakening USD provided a chance for the Euro to rise to 1.1233 after a 0.3% gain for the EUR/USD currency pair. The European Central Bank has scheduled a meeting which will take place in Portugal on Thursday. It is also expected to decide interest rates.
A few weeks ago there were expectations of a Fed rate cut in June. However, CME Group recently revealed that the chances of interest rate cuts in June have gone down to 20.8%. The organization did, however, note that the probability of a rate cut in July is still high. Dovish opinions by the Federal Reserve and a report indicating a slowing employment market have further fueled rate cuts expectations.
Manulife Asset Management’s portfolio manager Charles Tomes is convinced that the upcoming meetings will lead to more volatility, forcing investors to take a cautious approach. Tomes also believes that the Fed has stretched its decision to hold out on rate cuts for far too long and that the Fed is due to make changes.
Meanwhile, across the pond, the Bank of England plans to implement changes as far as the monetary policy is concerned. Stephen Gallo, who is in charge of BMO Capital Markets' foreign exchange strategy, believes that the Bank of England will likely not implement any other financial measures before Brexit negotiations are finalized.