U.S. Dollar Pulls Back As Recession Fears Grow After Disappointing PMI Reports

Key Insights

• The disappointing PMI reports put material pressure on the U.S. dollar. 
• PMI data from the EU and UK was not inspiring. However, traders focused on the U.S. as the Fed may have to be less hawkish in the upcoming months. 
• Commodity-related currencies are moving lower amid a broad pullback in commodity markets. 

U.S. Dollar Declines After PMI Reports

U.S. dollar moved lower after the release of the flash PMI data from the U.S. Manufacturing PMI declined from 52 in September to 49.9 in October, while analysts expected that it would decrease to 51. Services PMI declined from 49.3 to 46.6, compared to analyst consensus of 49.2. Numbers below 50 show contraction.

The reports indicated that the U.S. economy is slipping into a recession. Not surprisingly, the U.S. dollar found itself under pressure as traders bet that the Fed would have to be less hawkish than previously expected.

Currently, the U.S. Dollar Index is trying to settle below the 112 level. In case this attempt is successful, it will head towards the next support level at 111.50.

GBP/USD Tries To Stabilize Near 1.1300 As Traders Prepare For The New PM

GBP/USD made an attempt to settle above 1.1400 but lost momentum and pulled back towards the 1.1300 level as traders reacted to the recent political developments in the UK and the disappointing PMI reports.

UK Manufacturing PMI declined from 48 in September to 45.8 in October, while UK Services PMI decreased from 49 to 47.5. The reports highlighted the challenging situation in the UK economy.

However, traders believe that political stability will increase after Rishi Sunak becomes the next UK Prime Minister as other candidates dropped out of the race. The markets hope that Sunak will bring the much-needed conservatism into the decision-making process and stabilize the economy.

EUR/USD Rebounds Towards The 0.9900 Level

EUR/USD is moving towards the 0.9900 level after the release of the U.S. PMI reports. In the Euro Area, Manufacturing PMI declined from 48.4 to 46.6, while Services PMI decreased from 48.8 to 48.2.

The Manufacturing PMI report missed expectations but did not put material pressure on the euro as traders are ready to see bad news from Europe. The euro may get more support in the upcoming trading sessions if markets focus on the potential softening of Fed’s rhetoric after the disappointing U.S. PMI data.

USD/CAD Tests Resistance At 1.3750

USD/CAD rebounded towards the 1.3750 level amid a broad pullback in commodity markets.

Other commodity-related currencies have also found themselves under mateiral pressure. AUD/USD declined below the 0.6300 level, while NZD/USD moved closer to 0.5650. In case the current pullback continues, commodity-related currencies will head towards yearly lows.

USD/JPY Rebounds After Strong Interventions From The BoJ

USD/JPY  remains volatile after several interventions from the BoJ. Japan’s central bank will not reveal its plans regarding the volume and the timing of interventions, and speculators will have to be careful when trading USD/JPY.

It is important to note that technical levels do not exist when a central bank intervenes. Traders will have to watch momentum and be prepared for fast moves. While RSI has declined into the moderate territory and USD/JPY has enough room to gain upside momentum after the sell-off, the near-term dynamics of USD/JPY will depend on whether the BoJ will continue to defend the 150 level.

For a look at all of today’s economic events, check out our economic calendar.