Comment: US recap: USD soft, but off early lows after upbeat ISM services data

Noram Lithium

05/08/2024 18:54

Aug 5 (Reuters) - The USD index rose off early NorAm lows, but held to a
0.4% loss in NorAm afternoon trading as the post-payrolls risk adjustment
gathered steam. Though a rise in UST yields off session lows provided a
incremental boost for the dollar.
    Recession fears remain the primary focus, and despite the Monday rise in
long-term yields, short-term interest rates, as indicated on LSEG's IRPR page,
continue to price considerably more dovish Fed rate expectations with slightly
under two 25bp cuts priced for September and near 50bps in cuts for November
with a total of -117bps priced in by the Fed's Dec 18 FOMC meeting.
    EUR/USD rose 0.41% to 1.0961 in NorAm afternoon trading, having briefly
traded above 1.10 prior to the release of upbeat ISM non-Mfg data which posted
gains across the board which tempered recession fears slightly. With the ECB on
a less-dovish rate trajectory than the Fed, the EUR may make further gains as
long as data supports the current Fed-ECB stasis.
    USD/JPY was trading -1.5% at 144.26 in NorAm afternoon trading, well above
the early NorAm low at 141.84 and the overnight 7-month low at 141.68. The
dollar rallied significantly after the ISM data allayed the heightened recession
and low-rate fears, however USD/JPY is down near-4% so far in August having
added to post-BoJ hike weakness.
    GBP/USD traded -0.37% to 1.2756 within a relatively scant 1.2795-44 range in
NorAm. The pound remained ensconced in a relatively muted range between the
falling 10-DMA at 1.2839 and the daily cloud top at 1.2706. Though Fed rate
expectations have moved dramatically lower, diverging from BoE expectations,
there remains risk that the UK economy may be stalling as well which may prod
the BoE to shift to a softer rate outlook.
    The lion's share of today's risk off activity was felt in equities. Most
major U.S. indexes were down near 2.5% on heightened global recession fears.
    Cryptos were on the back foot as well with bitcoin falling 12.5% to $54.6k,
though off lows near 20% in early NorAm. Ethereum fell 8.8% to $2,456.
    
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 (Editing by Terence Gabriel
Paul Spirgel is a Reuters market analyst. The views expressed are his own.)
 ((paul.spirgel@thomsonreuters.com))