The US Dollar has been on a retreat since October, as the FED started softening the rhetoric on softer economic numbers from the US, which pointed to a possible recession. ISM manufacturing and non-manufacturing fell into contraction. Everyone was anticipating the FED to be dovish on Wednesday’s meeting and they delivered more than traders bargained for, when Powell commented on rate cuts, if the data supports it.

But, the economic data from the US showed a decent rebound in January, after the small dip in December which most probably was a result of extreme cold weather. Manufacturing returned above contraction and started expanding agin in January, while On Friday we had a number of great economic figures from the US, showing that there won’t be any recession. This sent the USD more than 100 pips higher across the board.

US ISM Mon-manufacturing PMI Index for January 

• Nonmanufacturing PMI index 55.2 points versus 50.4 estimated
• December services were month 49.2 points
• Non-manufacturing business activity index 60.4 points versus 54.5 estimated
• Prior month was 53.5 points
• Employment index 50.0 points versus 49.4 last month
• New orders index 60.4 points 45.2 last month
• Prices paid index 67.8 points versus 68.1 last month
• New export orders 59.0 points versus 47.7 last month
• Imports 53.0 points versus 52.7 last month
• Backlog of orders 52.9 points versus 51.5 last month
• Inventories 49.2 points versus 45.1 last month
• Supplier deliveries 50.0 points versus 48.5 last month
• Inventory sentiment 55.8 points versus 55.9 last month

This is the biggest monthly gain since June 2020. What contraction? Coupled with the US jobs report from earlier today, the year is getting off to a solid start. The Fed members have been concerned about the service sector inflation. This report, along with the US jobs report does not appease that concern and will keep the Fed in play for hikes like it or not.

Some comments:

“Raw material availability and lead times have improved but still pose a challenge. In our outlook, we are positive about growth. Consumer confidence is returning, and people are more willing to spend money on luxury items.” [Accommodation & Food Services]

“Orders are strong, but it’s difficult to support customers’ expectations on delivery due to challenges in the supply chain.” [Other Services]

“Modest increase in sales activity following the holiday slowdown. Still seeing warning signs of a national/international recession. Higher interest rates having an impact. Outlook for the first quarter of 2023 is still projected lower than the same period in 2022.” [Professional, Scientific & Technical Services]

“New residential housing market is still reeling from mortgage rate increases. Sales have fallen off dramatically at entry-level price points, as costs are trending flat.”