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USD drops on more poor data

The last working day of the month is often a lottery; the direction of travel for some currencies through the earlier part of the month can be reversed in full or in part. We saw that with the US dollar yesterday, which weakened across the board. The weakness was aided and abetted by a number of factors that make sense of the Fed’s apparent new-found dovishness. The Chicago Purchasing Managers Index fell from 45.2 to 37.2. That’s the most pessimistic it has been since June 2020. US pending home sales dropped for the 5th month in a row; the 11th drop in the last 12 months. We saw a substantial drop in US crude oil inventories as well as a drop in the inventories held by retailers.

The Fed’s Beige Book supported this general mood of a slowing US economy, albeit with slowing inflation as well. The only bright spot was a rise of 2.9% in annual GDP growth to Q3. That was a little above the market forecast of 2.7%. However, that’s a look in the rear-view mirror and the fear of future recession is writ large within comments from central bankers, economists and corporations in the US. So the spike in GBPUSD to just above $1.21 wasn’t unexpected. Neither was the spike in EURUSD, which hit $1.0460 at one stage. Both are a tad lower this morning on profit-taking; $1.2080 and $1.0425 respectively. We get the manufacturing PMI from the US today but not a lot else. Friday’s employment data will be the focus for now.

Weakness in USD sees AUD and NZD gain

The sharp drop in the value of the US dollar wasn’t the only ‘end of the month’ event yesterday. it prompted gains in the value of the Australasian dollars, bringing the GBPNZD rate down to NZD1.9125, the lowest level we have seen since September and it brought the GBPAUD rate down to AUD 1.7715, even though it was above AUD 1.80 at the start of the week. The AUD advance stalled when the AIG manufacturing index dropped to the lowest level since May 2020 and data showed capital expenditure contracted by 0.6% in Q3 when the markets had forecasted 1.5% growth. Evidently, the fear of economic slowdown, contraction or even recession is as global as the pandemic was.

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