The dollar continues to face pressure as weak manufacturing data emerged on Monday, causing hopes of an early pivot from the Federal Reserve. The Dollar Index, which measures the greenback against a basket of six developed economy currencies, was down less than 0.1% from Monday’s close at 101.755 by 03:00 ET (07:00 GMT).
The weak manufacturing data has been attributed to the ongoing supply chain issues due to the pandemic, which has resulted in shortages and higher prices of goods. This, in turn, has weighed on the dollar as investors become increasingly concerned about the possibility of rising inflation.
Federal Reserve Hints at Possible Pivot
The Federal Reserve has hinted at the possibility of a pivot amidst the weak manufacturing data. The central bank has previously stated that it would only consider reducing its stimulus measures when it sees “substantial further progress” towards its goals of full employment and 2% inflation. However, with the ongoing supply chain issues and rising inflation concerns, the Fed may be forced to pivot earlier than anticipated.
This pivot would likely result in a reduction of the Fed’s bond-buying program, which has been instrumental in providing liquidity to the markets and supporting economic growth. As a result, investors are closely watching for any signals from the Fed regarding a potential pivot.
Dollar Weakness Impacts Global Markets
The dollar’s weakness has had a significant impact on global markets. The euro, which makes up a significant portion of the Dollar Index, has risen to a two-month high against the dollar. This has resulted in a decline in the value of the dollar against other major currencies such as the yen and the pound.
In addition, the weakening of the dollar has led to an increase in commodity prices, particularly gold and oil, as investors seek to hedge against inflation and a potential decline in the dollar’s value. This has also resulted in a rise in global equity markets, particularly in Europe and Asia, as investors become more optimistic about the economic recovery.
Conclusion
The dollar’s weakness, brought about by weak manufacturing data and rising inflation concerns, has led to hopes of an early pivot from the Federal Reserve. While the Fed has previously stated that it would only consider reducing its stimulus measures when it sees substantial further progress, ongoing supply chain issues and rising inflation concerns may force the central bank to pivot earlier than anticipated. As a result, investors are closely watching for any signals from the Fed regarding a potential pivot.
