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Key US Manufacturing Metric Shows Unexpected Strength in December

Don Curren January 5, 2021

The Institute for Supply Management’s closely watched purchasing managers’ index for manufacturing jumped significantly higher in December, suggesting the factory sector in the US was robust at the end of 2020 despite the relentless surge in COVID19 caseloads.

The US dollar rose modestly on the trade-weighted basis immediately after the release, trimming the losses suffered early in the session, according to the DXY index. The greenback was under pressure due to the investor preference for riskier assets Tuesday morning reflected in the broadly stronger tone in evidence in equity markets.

The ISM reported that its December Manufacturing PMI registered in at 60.7%, up 3.2 percentage points from the November reading of 57.5 percent and the highest reading since 2018. This figure indicates expansion in the overall economy for the eighth month in a row after contracting in March, April, and May, the ISM said.

The result was considerably stronger than the 56.6% reading expected by economists.

The ISM said survey committee members reported their companies and suppliers continue to operate in reconfigured factories, “but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that are limiting manufacturing growth potential.”

It said panel sentiment nonetheless remained optimistic, with three positive comments for every cautious comment, an improvement from November.

The ISM said the New Orders Index registered 67.9%, up 2.8 percentage points from the November reading of 65.1%. The Production Index registered 64.8%, an increase of 4 percentage points compared to the November reading of 60.8%.

The Prices Index was particularly strong, with a print of 77.6%, up 12.2 percentage points from November reading of 65.4 percent.

Overall risk sentiment driven by developments in the coronavirus pandemic and on the political front will probably remain the primary driver for foreign exchange markets in the opening weeks of 2021, and there’s not much on the economic calendar in the early part of the week that’s likely to exert much influence on exchange-rate fluctuations.

The release of December jobs data for both the US and Canada on Friday will likely garner some attention from traders, however, and could have at least a short-term impact on major currencies.


Don Curren
Market Strategist and Content Editor