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Market Wire:
Dollar Rebound Finds Second Wind After ISM Beat

Stephen Casey January 3, 2018

It has just been reported that the Institute for Supply Management’s manufacturing index hit 59.7 in December, while construction spending increased 0.8% in November.

Wall Street’s finest expected manufacturing to stay at the 58.2 reading recorded in November, after falling slightly in that month. The big dollar is experiencing a small bounce in the minutes following the release, boosted by the positive surprise.

The details of the ISM’s report were a little mixed, though, with the employment component dipping to 57.0 from 59.7 in November. Ahead of Friday’s US jobs report, some traders will be looking at the employment component as an indication of the relative health of America’s labor sector.

The prices paid component jumped to 69.0, but could be overlooked as a similar bounce in September to 71.5 did not result in any residual higher inflation readings.

Overnight, the U.S dollar managed to finally stop the bleeding, although at the moment it doesn’t feel like more than a brief respite. Having said that, there is much to chew on this week following this morning’s important ISM figures.

This afternoon, the minutes from December’s FOMC meeting will be released, to be followed by jobless claims on Thursday and December’s non-farm payrolls report on Friday. Those looking for something more than a dead-cat dollar bounce will have their expectations confirmed – or disconfirmed – before the weekend.

The dollar managed to take advantage of a slight dip in sterling, falling on the back of a construction-induced PMI miss. Additionally, ex-Goldman and former Treasury minister Jim O’Neill warned some in the UK government could be completely missing the mark on trade and growth, post-Brexit. The euro has come off a bit, but not much, finding strong psychological support. Important manufacturing and services PMIs and December inflation data round out a similarly busy week in the euro zone.

Bottom Line: This morning’s figures continue to show a strong and growing American economy. The dollar index has once again overtaken the 92.00 handle, trying to reverse course on five straight days of losses and 11 losses in 12 days. The euro has declined against the greenback in very recent trading, but is finding some support and retaining most of its recent gains.  The US dollar is also mounting a comeback versus its Canadian counterpart, which has advanced for seven of eight sessions. Thursday and Friday’s busy data calendars leave a lot to be digested as we kick off 2018.

Stephen Casey
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