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US Manufacturing sector contracts, US dollar nosedived
TOPICSTags: Dollar Index, Federal Reserve, ISM
US dollar fell to two-months low against other major currencies after recent data show signs of gradual economic slowdown. The data spurred expectations that Federal Reserve remains on track to start cutting its interest rates this year, raising the opportunity cost of holding US dollar.
According to US Institute for Supply Management (ISM), Manufacturing PMI fell from 49.2 to 48.7 in May, with historical reading showing a prominent downward trend. The recent contraction in manufacturing sector was largely due to softening demand, with suppliers unwilling increase inventories due to policy uncertainty.
(Dollar Index, 4-hourly chart, TradingView)
Following the release of the disappointing data, bets for a rate cut in September increased substantially. According to CME FedWatch Tool, probability for a rate cut in September has rose to 61.6%. In the meantime, traders will wait for the release of Non-Manufacturing PMI from ISM coming Wednesday to obtain more market signals.
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