USD Staged A Solid Rally At The Start

US Dollar Mostly Stronger as Chicago PMI Hits Four-Year High

The US dollar staged a solid rally at the start of the US trading session, and while the currency ultimately ended the day up against many of the majors, the greenback fell throughout the afternoon and experienced hefty losses against the British pound.

Looking to the data on hand, the Chicago Purchasing Managers Index (PMI) surprisingly rose for a third month in December to a nearly four-year high of 60.0 from 56.1, indicating that business activity is growing at a faster clip.

A breakdown of the index shows that prices, production, new orders, and employment have all been on the rise, providing a more optimistic view of activity than various measures of manufacturing sector activity, such as the Dallas Fed and Richmond Fed reports. Ultimately, this suggests that the services sector is leading the way to US economic recovery.

On Thursday, there is minimal event risk and trading volumes will remain very low ahead of New Year’s Day. This puts the spotlight on the following week when liquidity will return and a series of key economic indicators will be released. On Monday, the December reading of ISM manufacturing is projected to rise to 54.0 from 53.6, indicating an expansion in US business activity for the fifth straight month.

On Wednesday, the release of ISM non-manufacturing is projected to show that business activity expanded during December, as the index may rise to 50.5 from 48.7. Later in the day, the minutes from the Federal Reserve’s last meeting on December 15 and 16 will hit the wires.

Following that meeting, the US dollar initially fell as they announced that they had left the fed funds rate unchanged at 0.25 percent, as expected, and stated that rates were like to remain “exceptionally low” for an “extended period.”

However, a statement that “economic activity has continued to pick up and that the deterioration in the labor market is abating,” along with fairly clear deadlines for the central bank’s liquidity programs ultimately led the US dollar higher against the euro and some of its other major counterparts.