Forexlive Americas FX news wrap: US dollar jumps on PMI but later gives it back

By Investor Empires On Apr 23, 2023

Markets:

S&P 500 is flat at 4,155
West Texas Intermediate crude oil rose $0.43 to $77.80
US 10-year bond yields rose 2.3 basis points to 3.568%
Gold fell $22 to $1,982
The euro is advancing, the Canadian dollar is lagging

Daily changes in the largest currencies on Friday were minimal but the day was not without drama. In particular, the US PMI from S&P Global sent the US dollar sharply higher, including 100 pips in USD/JPY and half of that in EUR/USD and GBP/USD. The report was surprisingly strong, including high new order numbers and price pressures that few people expected.

Some doubts arose after the numbers and the dollar’s movement faded. In the end, the dollar’s rally was completely (and more) reversed against the euro and the pound sterling. USD/JPY held about 60 pips of the gains from the decline but that was not enough to erase the losses from European trading.

There is an uncertain mood in the markets at the moment. For every data point that indicates a recession, there is one that shows the economy is on solid ground. This week, the newly weakened Philly Fed lifted it out of recession again only to be undermined by today’s number. There is another round of data next week, but the market is unlikely to be affected by tier 2 data points unless a few of them are in the same direction.

One worrying sign was the underperformance of commodity currencies. This came despite gains in oil, although copper fell slightly and gold slipped 1%. Some have pointed to the softness in global manufacturing PMIs today as a worrying sign of global demand for resources and that could be a factor.

The Canadian Dollar was particularly weak but this is due to the weak details in the Canadian Retail Sales report. I will repost what I told Reuters here.

“High mortgage rates are starting to bite into Canadians’ wallets,” said Adam Patton, senior currency analyst at ForexLive. “Canada is particularly sensitive to higher interest rates and this will lead to divergence in the economic performance of the United States and Canada in the second quarter and beyond.”