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US Dollar Hit by Weaker Manufacturing Data

January 1, 2019 at 15:16 by Andrew Moran

A sheet of US 100-dollar bills up to the horizonThe US dollar is kicking off 2019 lower against some of its major currency rivals. On Tuesday, the greenback took a slight hit on weaker December manufacturing data, as well as markets forecasting a more dovish Federal Reserve this year. Can the buck mirror its incredible but surprising performance from 2018? Or it will retreat amid political turmoil and geopolitical tensions?

For the first time since May 2016, five Federal Reserve indexes of regional manufacturing all slumped in unison last month. This suggests that a major element of the US economy may beginning to tumble.

The Dallas Fed’s factory index contracted to a two-year low of -5.1, down from 17.6 in November, the biggest decline in six years. Nearly one-quarter of manufacturers reported a worsened outlook in December, though expectations over future business conditions remained overall positive.

The Kansas City, New York, Philadelphia, and Richmond Fed factory measurements all weakened, which is just the sixth time in a decade.

Meanwhile, consumer confidence slipped last month to its lowest level since July, employment outlook gauges plunged at the biggest levels in 41 years, and housing data looks grim.

Investors will look ahead to the December labor report, scheduled for release on Friday. The market projects an increase of 180,000 jobs and an unemployment rate holding steady at 3.7%.

Last year, the greenback recorded one of its best annual performances in recent history, advancing about 5%. It joined the Japanese yen as the two best performing currencies in 2018.

The central bank was bullish for much of 2018, then when the market rout occurred in the final three months of the year, it transitioned into a dove. While it did raise interest rates at its last Federal Open Market Committee (FOMC) policy meeting, it reduced its forecast for planned rate hikes in 2019 from three to two. The market is penciling in the next rate hike for September, according to the CME Group FedWatch tool.

The USD/CAD currency pair dipped plummeted 1.47% to 1.3441, from an opening of 1.3640, at 13:56 GMT on Monday. The EUR/USD jumped 0.68% to 1.1548, from an opening of 1.1468.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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