The US Dollar Index (DXY) is trading steady just under the 100.00 psychological mark, supported by a hawkish tone from the Federal Reserve (Fed) and optimism surrounding the US-China trade agreement.
During Monday’s European session, the DXY held around 99.85, extending its more than 1% gain since last week’s Fed meeting.
Although the Fed delivered a widely expected 25 basis point rate cut, Chairman Jerome Powell’s remarks struck a hawkish note. Powell emphasized the growing challenge of managing monetary policy amid persistent inflation pressures and a stagnating labor market, cautioning against assuming further rate cuts this year.
Following Powell’s comments, market participants have scaled back their expectations for another rate reduction in December. According to the CME FedWatch Tool, the probability of a December cut has fallen to 67%, down from 91% before last week’s policy meeting.
In addition, renewed optimism over the trade framework signed by US President Donald Trump and China’s President Xi Jinping has lent further support to the Greenback.
Focus on US Manufacturing Data
Investors are now turning their attention to upcoming manufacturing activity data for October.
- The S&P Global Manufacturing PMI is forecast to confirm a modest uptick in sector activity, holding at 52.2, up slightly from 52.0 in September.
- Meanwhile, the ISM Manufacturing PMI is expected to remain in contraction territory, with a 49.2 reading compared to 49.1 previously. The Prices Paid Index is projected to show rising inflation pressures, inching up to 62.6 from 61.9.
About the Indicators
The S&P Global Manufacturing PMI provides a forward-looking snapshot of manufacturing sector health based on surveys of senior executives. Readings above 50 indicate expansion — generally bullish for the USD — while readings below 50 signal contraction and are bearish.
The ISM Manufacturing PMI, another key gauge of factory activity, similarly measures changes in output, employment, and prices. Traders closely monitor both the headline figure and sub-indexes such as employment and prices paid for insight into labor market strength and inflation trends.
Stronger-than-expected PMI readings typically boost the US Dollar, reflecting improved business sentiment and potential upward pressure on interest rates.