USD to Resume Uptrend If PMI Services and Manufacturing Jump

The USD has been on a retreating mode since last Friday, but it should resume the uptrend today if services and manufacturing PMI jump

Skerdian Meta•Tuesday, February 21, 2023•2 min read

The USD made a bullish reversal early this month, after some decent economic data from the US. The GDP report showed a decent expansion in Q4 of last year, inflation is not cooling off as much as most would have wanted, while the ISM services and employment showed a decent jump, all of which have recalibrated the market’s expectations higher for the FED rates.

As a result, the USD has been making decent gains, but on Friday we saw a retreat lower against major currencies, which continued yesterday as well. Although some of that price action was due to the bank holiday weekend in the US.

But some of that retreat might be due to the PMI manufacturing and services reports which will be released later today. After the sudden surge in ISm services in January, now the attention shifts to the PMI services report and if today’s numbers come as expected, then this will be yet another fact that the US economy is rebounding and the FED will use this to keep raising interest rates further.

So, the retreat of the last two trading days was due, after the surge in the USD this month and if today’s data comes hot, then USD buyers will come back again and push the buck higher. Cleveland FED resident Mester made some hawkish comments earlier pressing for rates to go above 5%, so the situation is brewing up for the USD to resume the bullish trend after today’s data.

FED Member Loretta Mester Speaking

Fed will need to go above 5% and stay there for awhile
January CPI report underscores there is still more to do on cooling inflation
Expects to make good process on lowering inflation
Says she saw compelling case for 50 bps at the last FOMC meeting
Fed has more work to do to control inflation
Inflation levels remain too high
Bigger risk is to undershoot in effort to control inflation

This is hawkish and the market is taking it that way but Mester is usually hawkish so I don’t see these comments as a surprise. However, the market is differing at the moment. There is some contrast to her January 18 comments when she said “we’re beginning to see the kind of actions we need to see” and that rates should rise ‘a little bit’ above 5-5.25%. This time she didn’t specify how much higher the Fed needs to go, leaving it open-ended, however, she speaks again at 6 pm ET and could clarify.

Check out our free forex signals
Follow the top economic events on FX Leaders economic calendar
Trade better, discover more Forex Trading Strategies
Open a FREE Trading Account

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.