US Dollar Index Falls Back Toward Earlier Low After ISM Index Disappoints

The slower than anticipated recovery in US services could suggest July's slump was less transitory than many had previously thought.

The US Dollar index fell back toward its lowest level for a year and a half during noon trading Wednesday after the ISM Non-manufacturing index came in lower than was expected, leaving much of the benchmark's July fall still intact.

The index read at 55.3% for August, up from 53.9%, in July but below the consensus forecast of economists for a reading of 55.8%. The slower than expected recovery of the index comes after it fell from 57.4% for July.

The Dollar index slumped by 24 points to 91.96 in the immediate aftermath of the release, taking the benchmark close to its lowest level in 18 months.

This is while the Pound-to-US-Dollar rate rose by 15 points, for bids and offers to be accepted around 1.3057, taking the session’s gain to 0.13%. The Euro-to-US-Dollar rate added a similar 15 points to trade as high as 1.2940 before paring gains.

"The non-manufacturing sector has rebounded from the prior month’s cooling-off period. The majority of respondents are optimistic about business conditions going forward," says Anthony Nieves, chair of the Institute for Supply Management.

While the August ISM number points to continued growth in the services sector, it also suggests the slump seen in July was less transitory than some had previously imagined, with around half of the decline in the index still intact.

Dollar bulls were handed a bloody nose Tuesday after a multitude of factors pushed 10 Yr Treasury yields to their lowest level since the US election, hammering the greenback lower against many of its G10 counterparts.

Among those factors were dovish comments from two Federal Reserve speakers, continued and increasing tensions over North Korea, as well as another extreme weather event threatening the US seaboard.

Further off in the distance, the US debt ceiling lurks, albeit something that is likely to become more of an issue in late September and once into October.

“A December hike is now just a 24% probability event, the lowest since May and reason for the dollar to remain under downward pressure,” says Derek Halpenny, European head of global markets research at MUFG, in his morning note.