Reuters, NEW YORK, August 23 – The U.S. dollar depreciated against a basket of currencies on Wednesday as statistics revealed that the large service sector’s desire for new business fell and that U.S. economic activity nearly reached a point of standstill in August.
The manufacturing and service sectors are monitored by S&P Global’s flash U.S. Composite PMI index, which registered a reading of 50.4 in August from 52 in July, marking the largest decline since November 2022.
According to Michael Brown, a market analyst at Trader X, the data “rather threatens the ‘U.S. exceptionalism’ narrative that the market has been trading on for the last couple of weeks.”
Forecasts for GDP growth have been revised upward in recent months as a result of months of robust consumer spending and a strong labour market allaying concerns about a potential recession. However, the figures released on Wednesday showed a more muted image of the economy.
The U.S. dollar index, which compares the value of the dollar to six important rival currencies, fell 0.14% to 103.45.
Earlier in the day, the index reached a high of 103.98, surpassing its previous two-month high, as a result of Europe’s disappointing business activity data that caused the euro and the British pound to weaken.
S&P Global’s compilation of the HCOB flash Composite Purchasing Managers’ Index (PMI) for the euro area showed a decline from July’s reading of 48.6 to 47.0 in August, which is the lowest reading since November 2020. The services component dropped to 48.3 from 50.9, marking the first time this year that it has fallen below the 50 threshold separating expansion from contraction.
The German composite figure decreased to its lowest level since May 2020 as manufacturing output continued to decline and services activity once again shrank. Following the German statistics, the euro dropped to $1.0802, its lowest level since mid-June.
The S&P Global/CIPS PMI fell to 47.9 in August, the lowest level since January 2021, while the poll also revealed that pricing and cost pressures eased. The result was a similar story for the pound, which dropped to its lowest level in more than a week at $1.2623.
The U.S. numbers are more worrisome considering how resilient the economy has been thus far this year, according to Trader X’s Brown. “I don’t think anyone is particularly surprised about the weakness here in the UK or in Europe, nor by the subsequent tumble in the GBP and EUR earlier,” Brown said.
At $1.271, the pound was recently down 0.17%.
The euro and pound will weaken more against the dollar over the coming few months, according to Jonathan Petersen, senior markets economist at Capital Economics. “The weaker-than-expected PMI data from European economies is consistent with our view that the euro and sterling will fall against the dollar over the next couple of months,” he added.
In general, traders anticipate modest movement in currency markets before to Federal Reserve Chair Jerome Powell’s speech at the Fed’s central bank symposium in Jackson Hole, Wyoming, scheduled for Thursday through Saturday.
Traders are on edge as they anxiously scan for any signs of intervention as the dollar dropped 0.71% versus the yen to a more than one-week low of 144.845 yen, retreating from the nine-month high of 146.565 set last week.
Last year’s dollar break over 145 yen prompted intervention, and there is growing suspicion that Tokyo may soon enter the market to defend its currency once more if the yen drops further.
As investors become more at ease with riskier bets, bitcoin climbed 1.62% to $26,465, a five-day high, in the cryptocurrency market.