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Weekly FX Commentary May 26, 2021: Strong US PMI data has limited impact on USD

26 May 2021
Strong US PMI data has limited impact on USD  

Last Friday, US Purchasing Managers’ Index (PMI) readings for May came in higher than expected with the manufacturing PMI reaching a record high of 61.5 (vs consensus: 60.2; previous: 60.5) and the services PMI jumping to 70.1 (vs consensus: 64.5; previous: 64.7). Although this provided temporary support to the US dollar against other major currencies, USD gains proved short-lived. Overall, major currency pairs traded sideways over the past week with no clear trend.   April inflation figures were slightly above expectations in both the UK (1.5% YoY; vs consensus: 1.4%; previous: 0.7%) and Canada (3.4% YoY; vs consensus: 3.2%; previous: 2.2%) due to a combination of higher energy prices, a low-base effect, and recovering economies. Although the impact on the GBP and CAD has been somewhat limited, further inflationary pressure would support the countries’ respective currency as market expectations of faster central bank monetary policy tightening would increase. 


The Week Ahead 

After surprising the markets to the upside end of last month, which provided support to the US dollar, US personal income (consensus: -14.1% MoM; vs previous: +21.1%) and personal spending (consensus: +0.5% MoM; vs previous: +4.2%) for April should be watched closely. Next Monday, China will announce its official Manufacturing PMI reading for May (consensus: 51.7; vs previous: 51.1). A higher-than-expected figure would support the renminbi.