The DXY Index extended its recovery overnight to 97.6, adding another 0.6% gain after Friday’s 0.7% rise. The move was driven by a pickup in US Treasury yields, with the 10-year climbing from 4.21% to 4.28% during the US session. US ISM Manufacturing PMI was significantly stronger at 52.6 in January, well above the consensus for a rise to 48.5 from 47.9 in December. New orders surged to a three-year high of 57.1, employment rose to a one-year high of 48.1 (still below the break-even 50 level), and prices paid increased to a four-month high of 59.
To extend its recovery, the DXY needs to break decisively above December’s low of 97.7. Attention now turns to tomorrow’s ISM Services PMI, which carries greater weight for the US economy, and is expected to moderate to 53.5 in January. December’s headline activities were revised lower to 53.8 from 54.4, alongside new orders to 56.5 from 57.9, and employment to 51.7 from 52.0. But prices paid were revised higher to 65.1 from 64.3.
The Bureau of Labor Statistics has announced that Friday’s US monthly jobs report would be delayed due to the partial government shutdown. However, having experienced the longest shutdown in October-November, investors will no longer extrapolate shutdown risks into recession fears; instead, they will treat it as political theatre with limited economic consequences. More importantly, this disruption will unlikely affect the next two FOMC meetings, which are likely to pause after three rate cuts, and President Donald Trump’s nomination of Kevin Warsh as the next Fed Chair in May.
Profit-taking after two days of USD gains cannot be ruled out. (1) The JPY stabilised after Japanese Finance Minister Satsuki Katayama clarified this morning that Prime Minister Sanae Takichi’s weekend remarks should not be interpreted as endorsing a weaker JPY. Katayama also reaffirmed that authorities remain vigilant against excessive JPY weakness. (2) In India, President Trump’s Truth Social post signalled a rollback of US tariffs on Indian goods to 18% from 25%. INR responded with a 0.5% rebound to 91.5 per USD, recovering from the record low near 92 driven by the budget’s limited fiscal consolidation earlier. (3) Against Fed pause expectations, markets will also be looking for a sentiment lift from the Reserve Bank of Australia delivering on the 25-bps hike that is largely priced in at today’s meeting.
Quote of the Day
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Winston Churchill
February 3 in history
The "Tulip Mania" market crash occurred in the Dutch Republic in 1637.
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