Market Wrap – US dollar drops

The US dollar continue to slide in the US session, this could be due a number of factors such as weak Factory Orders data from the United States today and a strong move higher in US equity markets on improved risk sentiment.

Indices in the US continue to power higher, with the S&P500 leading the way. The S&P500 has recently staged a major technical breakout and looks like it could start to comfortably trade above the 4,000 level.

Also, we are seeing the US dollar index as the EURUSD pair trades back towards the 1.0700 handle while sterling rallies back towards the 1.2100 area. The USDJPY pair is quiet ahead of the BoJ meet this week.

Breaking down the Factory Order data and New orders for US manufactured goods fell 1.6% month-over-month in January 2023, after a downwardly revised 1.7% rise in December, still better than market forecasts of a 1.8% drop.

Orders for transportation tumbled 13.3%, dragged by a 54.5% slump in those for nondefense aircraft and parts. Again, this could be a reason why we saw the US dollar falling.

Meanwhile, new orders rose for fabricated metal products (0.2%), electrical equipment, appliances, and components (1.3%) and machinery (1.6%). Excluding transportation, factory orders went up 1.2%, rebounding from a 1.2% fall in the previous month. On a year-on-year basis, orders increased 4.3% in January.

Jerome Powell is set to appear in his semi-annual Humphrey Hawkins appearances on Tuesday and Wednesday, starting with the Senate. However the text of the comments are often released the evening before, so markets could be pre-empting his speech today.

If so, watch for his comments to similar the weekends speech from the Fed’s Daly who said that further policy tightening, maintained for a longer term, will likely be necessary and “I am beginning to think the labour market has a shortage of workers”

Daly also said that “Anecdotes from business leaders suggest inflation is slowing more than recent data suggests.” This is obviously less hawkish than other Fed speakers of late.

As Fed member assess upcoming data before the March 22 FOMC, which will include non-farm payrolls this Friday and CPI numbers March 14, which is set to be a negative print according to the latest estimates.