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US Dollar Sideways as Key Manufacturing Index Slumps to 10-Year Low

January 3, 2020 at 18:40 by Andrew Moran

Some US one-dollar billsThe US dollar is trading sideways at the end of the trading week as the manufacturing sector continues to slump at a decade-low. Can the manufacturing industry turn things around in 2020 as the US and China gradually wind down their 18-month trade dispute? From trade certainty to the White House’s aim for a weak dollar policy, American manufacturers may have a rebound year.

The Institute for Supply Management (ISM)’s manufacturing index fell to 47.2 in December, down from 48.1 in November, which is the worst reading since June 2009. Anything below 50 indicates a contraction. This is also the fifth consecutive monthly contraction.

Other ISM indexes were disappointing, too. The ISM index for new orders dipped to 46.8 last month, down from 47.2 in November and below market forecasts of 48.9. The manufacturing employment index fell from 46.6 in November to 45.1 in December and the manufacturing prices index rose from 46.7 to 51.7 in the same one-month period.

In its report, the ISM noted that just three of the 18 industries it monitors said their businesses expanded in December. This is the fewest in a decade.

This comes after the IHS Markit manufacturing purchasing managers’ index (PMI) was revised slightly lower from 52.5 in December to 52.4. The positive figures were driven by higher output, new businesses, and employment growth at a seven-month high.

Analysts say while these are bearish figures, the US economy has diversified away from manufacturing. Indeed, the sector played a much larger role in the economy several decades ago than it does today. This might explain why the US has been able to weather the economic storm clouds from the trade war, especially as the country experiences growth in the service sector.

In other data, construction spending edged up 0.6% in November, up from 0.1% in October, according to the Bureau of Economic Analysis (BEA). The fifth straight gain was led by home building and government projects, which offset weakness in non-residential construction.

The US Dollar Index shed 0.05% to 96.79, from an opening of 96.71, on Friday. The greenback has had a good start to the new year, rising 0.4% so far and topping the 97.0 mark.

The USD/CAD currency pair rose 0.05% to 1.2993, from an opening of 1.2962, at 17:27 GMT on Friday. The EUR/USD was unchanged at 1.1171.

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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