Before Jackson Hole, soft data causes the dollar to decline in early trade

24 Aug 2023 , 09:53 AM

Ahead of the Federal Reserve’s Jackson Hole symposium, the dollar suffered a dramatic pullback against Asian currencies on Thursday as weaker-than-expected global economic data clouded the outlook for interest rates and drove down U.S. yields.

The Australian dollar, which has been struggling for a while due to indicators of China’s slowdown and the U.S. economy’s resilience, increased 0.9% overnight after U.S. manufacturing and services PMIs fell short of forecasts.

In line with a strong decline in U.S. Treasury yields, the New Zealand dollar and the yen both increased last night. The yen also crossed below 145 to the dollar for the first time in more than a week.

The Australian dollar is now at $0.6479, the New Zealand dollar is at $0.5976, and the yen has firmed somewhat to 144.64 per dollar in early trading in Asia.

The dollar index, which compares the value of the dollar to a basket of six important currencies, is still up for the month, but it fell by roughly 0.2% over night. The world’s PMI figures were weak, which restrained euro advances and pushed sterling on a wild round trip before it stabilized at $1.2717.

Early Asia trade saw the euro holding steady at $1.0865.

According to overnight polls, Europe’s manufacturing production downturn continued and the services sector experienced a decline. British industry output decreased, setting the country’s economy up for a downturn. Since February, the growth of U.S. corporate activity has been at its worst level. The economy appears to be beginning to stagnate.

Ten-year U.S. rates experienced their worst one-day decline in more than three months, falling 13 basis points (bps) to 4.198%, which helped to temper recent increases.

‘However, concerns on global and China growth may be high enough for any slippage in yields that pushes dollar lower to be seen as a buy-USD, sell-bonds opportunity,’ the author added.

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