US dollar shrugs off dismal US data to edge higher

THE US dollar shrugged off early weakness to edge higher against a basket of currencies on Friday (Jul 22), after data showed US business activity shrank for the first time in nearly 2 years in July as a services slowdown outweighed manufacturing growth.

S&P Global on Friday said its preliminary — or “flash” — US Composite PMI Output Index had tumbled far more than expected to 47.5 this month from a final reading of 52.3 in June.

With a reading below 50 indicating business activity had contracted, it is a development likely to feed into a vocal debate over whether the US economy is back in — or near — a recession after rebounding sharply from the downturn in early 2020 at the start of the Covid-19 pandemic.

The US dollar found some support from safe-haven flows late on Friday, as investors’ appetite for riskier assets diminished with US indexes selling off on some weak earnings reports.

Against a basket of currencies, the US dollar was 0.1 per cent higher at 106.73. For the week, the index was down 1.2 per cent.

Friday’s dismal US data reflects a hit to sentiment, similar to that seen elsewhere around the globe, Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, said.

“That’s a reflection of tighter financial conditions and also the fact that inflationary pressures remain elevated,” Rai said.

Rai, however, said that he wasn’t reading too much into the US dollar’s weakness on Friday. “Even if the US economy does slow down somewhat I don’t think you can extrapolate some sort of medium term dollar weakness ... because we are seeing similar things elsewhere,” he said.

Overall activity in the eurozone shrank due to an accelerating downturn in manufacturing and a near-stalling of service sector growth, with inflation pushing consumers to cut back spending, S&P Global’s Composite Purchasing Managers’ Index, a good gauge of economic health, showed.

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The euro was 0.4 per cent lower against the US dollar at US$1.0196.

The British pound slipped 0.2 per cent against the US dollar to US$1.1979 after data showed that Britain’s businesses grew at their slowest pace in 17 months in July, fuelling concerns about a slowdown in a UK economy grappling with inflation at a 4-decade high.

The risk-sensitive Australian dollar was 0.26 per cent lower at US$0.6911, while the kiwi fell 0.17 per cent to US$0.6242.

In cryptocurrencies, bitcoin was about flat on the day at US$23,074.82, on pace to finish the week up about 10 per cent, as traders bet the recent bout of weakness that had engulfed the market was over. REUTERS