Economic Data is Weighing Heavily on the Greenback

The US dollar index was priced at 92.80 on Thursday, August 3, 2017. For the year to date, traders have watched this broad measure of the USD slowly being eroded away. On January 2, 2017, the US dollar index was trading at 102.78, and since then it is down 9.36%, and trending bearish. The 52-week low for the DXY is 92.55, and the 52-week high is 103.82. The DXY measures the performance of the greenback against a basket of weighted currencies including the EUR, SEK, CHF, GBP, CAD and JPY.

Recent economic data releases from the US have dampened expectations about a reversal in the USD’s fortunes. The ISM non-Manufacturing PMI is hovering at 1-year lows. The 53.9 reading for July is down from 57.4 in June, and well below forecasts of 57. However, any figure above 50 is perceived as expansionary. In July, most of the sub- indices came in lower than June’s levels. For example: new export orders dropped from 55 to 53, backlogs of orders dropped from 52.5 to 52, inventories remained constant, employment plunged from 55.8 to 53.6, and new orders increased from 55.1 to 60.5.

Between June and July, US private-sector employment rose by 178,000 jobs. While this came in below expectations of 185,000 jobs, it helped the USD to stabilize midweek. Investors are still looking for clues about which direction the Fed FOMC is going to move when it comes to interest rates. The US nonfarm payrolls data report is one of the most anticipated economic data releases on the calendar. When employment numbers meet or exceed expectations, the effect is positive for the greenback. When employment data falls shy of expectations, the USD retreats.

According to the latest CME FedWatch predictions, there is a 1.4% likelihood of rates rising on Wednesday 20 September 2017. The current rate is 1.00% - 1.25%. If the Fed raises rates, demand for the USD will strengthen. As we project further into 2017, the prospect of an additional rate hike increases sharply. By November 1, 2017 there is a 5.3% probability of a 25-basis point rate hike. And by Wednesday, December 13, 2017 there is a 42.2% chance of a rate hike.

The BoE Puts the USD Back in Contention

Super Thursday turned out to be a misnomer for the GBP. After several sessions of appreciation, traders abruptly changed direction by shorting the GBP en masse. From close to 1.3250, the cable dropped to 1.31 and thereabouts after the Bank of England decided to maintain the bank rate at 0.25%. The BOE’s assessment of the UK economy was equally grim. Forecasts for 2017 GDP growth were tapered to 1.7%, from a prior forecast of 1.9%. This sent speculators into a selling frenzy, helping the USD, JPY, EUR and other currencies to rally. That the BOE MPC vote was 6:2 as opposed to 5:3 previously was also disheartening to sterling bulls.

According to Stavros Lambouris, CEO International of HYCM, one of the leading providers of online FX and CFD services with a 40-year operational history: ‘The current economic climate in the US is giving investors, traders and speculators pause. The USD has whipsawed in recent weeks, owing to mixed data releases. As a case in point, US factory orders popped 3% month on month in June, after being revised lower (-0.3%) in May. Many of my colleagues forecast 1.9% for US factory orders, so naturally we were heartened by the actual figure of 3% released on Thursday, 3 August 2017. The recent declines in the GBP/USD pair are also appetizing for USD bulls. But caution remains the order of the day.’