By Konstantinos Chrysikos, Head of Customer Relationship Management at Kudotrade
The US dollar edged slightly lower on Tuesday after a strong two-day rebound. Underlying support remains firm, with Treasury yields rising across the curve, underpinned by resilient US economic data.
Monday’s data delivered a clear upside surprise. The ISM Manufacturing PMI jumped to 52.6 in January from 47.9, decisively beating expectations and marking the first expansion in factory activity in a year. While employment and inventories remain in contraction, the recovery in the employment sub-index suggests the labour drag may be easing. Taken together, the data reinforce the narrative that US growth remains resilient.
This economic strength could feed into interest rate expectations. In this regard, Atlanta Fed President Raphael Bostic indicated that there was no need for rate cuts this year, which could affect sentiment.
Attention now turns to Wednesday’s ADP employment report and ISM Services PMI. Evidence of continued labour market strength and service sector expansion would likely reinforce the dollar. However, partial government shutdown risks could cap gains, keeping investors cautious despite improving fundamentals.