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Dollar bulls charged on Monday’s New York trading session thanks to a huge jump in the ISM manufacturing PMI to its 13-month high. European currencies stayed in the red while commodity currencies rebounded.

  • U.S. ISM manufacturing PMI up from 58.8 to 60.8 vs. projected dip to 57.9
  • U.S. ISM manu PMI jobs component rose from 59.9 to 60.3
  • U.S. Markit final manu PMI upgraded from 53.0 to 53.1
  • Canadian Markit manufacturing PMI up from 54.6 to 55.0
  • FOMC member Kaplan: Keeping an open mind for Dec hike
  • Kaplan: Recent hurricanes likely led to weaker Q3 growth

Major Events/Reports

Strong U.S. manufacturing PMI

It looks like the hurricanes in September didn’t dampen manufacturing activity as much as expected, with the ISM manufacturing PMI surging from 58.8 to its 13-month high at 60.8 instead of dipping to 57.9.

Components of the report showed that the jobs index rose from 59.9 to 60.3, sending positive vibes for Friday’s NFP release. The index for prices also increased from 62.0 to 71.5 to reflect upside inflationary pressure. Components for supplier deliveries, new orders, and production also ticked higher while indices for imports and inventories declined.

Also, the Markit version of the report saw an upgrade from the initial estimate at 53.0 to 53.1. Just as the ISM version, this featured a strong pickup in employment for September, supported by improving business confidence and rising client demand.

U.S. markets in the green

Treasury yields rose in reaction to the upside surprise in manufacturing PMI as this could also spell stronger than expected NFP figures, which might bolster Fed December hike expectations.

  • U.S. 10-year bond yield rose to 2.337% (+0.92%)
  • U.S. 2-year note yield rose to 1.487% (+0.97%)
  • U.S. 30-year bond yield rose to 2.866% (+0.93%)

Equities were also in positive territory, even with the dip in risk-taking owing to geopolitical concerns like the attack in Las Vegas and the violence in Catalonia’s polls, as investors kept their fingers crossed for the Trump administration’s tax reform plan.

  • Dow 30 index is up 152.51 points to 22,557.60 (+0.68%)
  • S&P 500 index is up 9.76 points to 2,529.12 (+0.39%)
  • Nasdaq is up 20.76 points to 6,516.72 (+0.32%)

Remarks from FOMC member Kaplan

Fans of the dollar continued to keep close tabs on testimonies by FOMC members, reading between the lines to scour for any clues on how they might vote in December.

Federal Reserve Bank of Dallas President Robert Kaplan noted in his speech that he is keeping an open mind for a December hike, citing that he is looking at M&A activity to gauge cyclical upward inflationary pressure. Keep in mind that inflation is the make-or-break factor for the Fed decision, as a number of members have judged that it might be better to wait for more gains before tightening.

Kaplan also mentioned that Hurricanes Harvey and Irma likely put a huge dent on Q3 growth but that he still sees the annual GDP at around 2.25%. For him, the question is whether or not the economy can rebound in the current quarter. He concluded that the Fed can afford to stay patient, adding that they’ve got room to raise rates but not as much as people think.

In other dovish Fed official news, Kashkari reiterated that the recent hikes are keeping a lid on inflationary pressures. He said:

“My preference would be not to raise rates again until we actually hit 2 percent core PCE inflation on a 12-month basis, unless we have seen a large drop in the headline unemployment rate signaling that we have used up remaining labor market slack, or a surprise increase in inflation expectations.”

Major Market Mover(s):

EUR & GBP

The euro and the pound were still the weakest of the bunch as both were dragged lower by political concerns.

EUR/USD fell 41 pips to 1.1722 (-0.34%), EUR/JPY is down 4o pips to 132.18 (-0.32%), EUR/AUD is testing support at the 1.5000 handle (-0.47%), GBP/USD fell 53 pips to 1.3254 (-0.40%), and GBP/JPY is down to a low of 149.27 (-0.55%)

USD

The dollar raked in decent gains to start the quarter, buoyed by strong manufacturing PMI and a bit of risk aversion, shrugging off cautious remarks from a couple of Fed officials.

USD/JPY tested the 113.00 mark and is up 43 pips (+0.38%), USD/CHF is up 83 pips to .9769 (+0.86%), and USD/CAD is up 47 pips to 1.2534 (+0.42%)

Watch Out For:

  • 1:00 am GMT: Australia HIA new home sales (-3.7% previous)
  • Chinese banks closed for the holiday
  • 1:30 am GMT: Australia building approvals (1.1% expected, -1.2% previous)
  • 4:30 am GMT: RBA interest rate decision (Check out Forex Gump’s preview here!)
  • 6:00 am GMT: BOJ core CPI (0.4% previous)
  • 6:00 am GMT: Japanese consumer confidence index (rise from 43.3 to 43.5 expected)
  • 6:30 am GMT: Australian ANZ commodity prices (20.1% previous)