Market Wrap – US dollar sizzles on Tuesday

On the first full trading day, with Asian, European, and United States markets open the main story on Tuesday was the US dollar as it sizzled on Tuesday.

Without a clear driver for US dollar strength the reason behind the move is more likely than not liquidity, as the US dollar remains the funding currency globally.

In terms of market move the EURUSD pair suffered its worst one-day price drop since September as it slumped well down towards the 1.0550 area. In fact, as one point it reached 1.0520.

The British pound also staged a big drop and recovery against the US dollar as it fell towards the 1.1900 level and staged a swift recovery back above the 1.200 level.

Stock also suffered a similar fate and initially sold-off, however, they do appear to have found more of a footing and recovered some of the initial losses.

The S&P Global US Manufacturing PMI was unrevised at 46.2 in December of 2022, pointing to the biggest contraction in factory activity since May of 2020, amid weak client demand.

Output fell at a solid pace that was the quickest in just over two-and-a-half years and new orders fell at one of the fastest rates ever. Companies noted that weak client demand stemmed from economic uncertainty and inflationary pressures leading to lower purchasing power among customers.

Foreign client demand also contracted as dollar strength and global economic uncertainty weighed. Also, purchasing activity dropped markedly and at the fastest pace since May 2020, leading to broadly unchanged lead times for inputs, as supplier capacity constraints were less apparent than earlier in the year.

Meanwhile, backlogs of work contracted at a steep pace and employment rose only slightly. On the price front, inflation slowed. Also, output expectations picked up to three-month high, but remained historically subdued.