USD continues steady rise, manufacturing exceeds expectations
Summary
Last week’s economic releases were relatively light, but several notable manufacturing data points showed signs of strengthening. Additionally, with the Fed potentially pausing rate cuts in January, the U.S. dollar continued to rise.
Global manufacturing
In the U.S., the week began with the Chicago PMI reading well below consensus at 36.9. However, the Dallas Fed Manufacturing Survey exceeded expectations, coming in at 3.4. Last Friday, the ISM Manufacturing Index posted a stronger than expected reading at 49.3. This is still in contractionary territory (with a below 50 reading); however, the index has now seen two consecutive months of strengthening. While this is a good sign for the overall economy, it is another data point that strengthens the case for the Fed to pause rate cuts.
Internationally, there were also several PMI readings released last week. On Wednesday, China’s PMI fell below expectations at 50.5. While this number indicates slight expansion, it was below the estimates of 51.6. PMI readings in the U.K., France, and Germany were all well below 50, highlighting the continued struggle many countries face related to manufacturing.
The dollar
While the Fed may potentially hold rates and other central banks continue with their rate-cutting cycles, it is no surprise to see appreciation in the U.S. dollar, rising significantly over the past three months as shown in the chart below. Given the new administration’s plans to boost growth (but with some proposed policies likely to keep inflation above the 2% Fed target), this trend could persist in 2025. The new administration has also proposed plans to increase U.S. manufacturing, and a strong U.S. dollar has historically been a challenge for U.S. exports. Time will tell as we get more specifics on fiscal policy in the coming months.
Source: Wall Street Journal/Factset
Other key economic releases
Despite a light week in economic readings, the Case-Shiller Home Price Index came in on Tuesday, showing a slight increase in home prices on the month. However, the annual rate slowed, as expected. On Thursday, U.S. jobless claims were released and came in lower than expected at 211,000 new claims, and continuing claims dropping below 1.9M. However, given the two holiday weeks, this data is likely to be revised in the upcoming releases.
The week ahead
This week will bring several important economic data releases, with the most important being the U.S. jobs report on Friday.
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