U.S. Dollar Stretches to 14-Year High on Robust Manufacturing Data

The new year started with the U.S. Dollar surging to its highest level in 14 years against a basket of currencies. The move was primary driven by a steep drop in the EUR/USD. The Greenback opened steady to higher as trading resumed after a three-day holiday week-end, but the rally picked up strength after the release of key U.S. economic data.

Economic News

The major report was ISM Manufacturing PMI. It came in at 54.7, up from 53.2 and a full point over the 53.7 estimate. According to Markit, the new orders index rose by 7.2 points, the biggest increase in more than seven years. Manufacturers reported stronger hiring and higher prices for raw materials, which support other signs of labor-market strength and higher inflation.

Final Manufacturing PMI was 54.3, slightly better than the 54.2 estimate. Construction spending was up 0.9%, well above the 0.5% estimate and 0.6% previous read. This was its highest level in more than 10 years.  ISM Manufacturing prices were 65.5, also higher than the 55.6 estimate and 54.5 previous read.

U.S. Equity Markets

U.S. stock investors came in strong early in the session, producing triple-digit gains in the Dow, however, the market traded well off its highs later in the session as oil prices gave back their initial gains.

Telecoms and healthcare stocks led the S&P 500 Index higher. The Dow Jones Industrial Average was supported by Walt Disney and Goldman Sachs.

Crude Oil

International Brent crude oil and U.S. West Texas Intermediate crude oil rose to 18-month highs on Tuesday amid hopes that a deal between OPEC and Non-OPEC countries to cut output would trim some of the excess supply while stabilizing prices.

After the initial rally, crude buyers lost interest, sending the market lower on concerns that increased production from Libya would offset much of the cuts from the other OPEC members.

U.S. Treasurys

The benchmark 10-year U.S. Treasury Note yield rose to 2.45 percent and the short-term two-year note yield traded at 1.222 percent. The rise in the yield was related to the better-than-expected U.S. economic data which came in strong enough to suggest the Fed will be on track to raise interest rates perhaps as early as its meeting at the end of the month. The deciding factor could be Friday’s U.S. Non-Farm Payrolls report.