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US Dollar Index Fell Sharply as PMI and Fed Ran the Show

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US Dollar Index fell 1.6%

The US Dollar Index, which measures the strength of the US dollar against the other major currencies, fell below the 97 mark on February 3, 2016. The index hit a low of 96.9 before ending the day slightly higher at 97.3. The fall in the US dollar was attributed to multiple reasons. The major reason was attributed to the dovish comments made by William Dudley, president of the New York Fed. The downturn was also attributed to the US non-manufacturing PMI (Purchasing Managers’ Index) coming in below forecasts.

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Fed, non-manufacturing PMI, and crude oil inventories

The non-manufacturing PMI published by the Institute for Supply Management declined on an annual basis in January to 53.5 points. That’s below market expectations of 55.1. The previous month’s figure was 55.8.

The US services PMI also weakened in January on an annual basis to release at 53.2, lower than forecasts of 53.7. December’s reading was 54.3. The reading was the lowest figure since October 2013, caused by a slowdown in output and new businesses. 

Crude oil inventories also increased in the week ended January 29, 2016, by 7.8 million barrels. Compare this to a rise of 8.4 million in the previous week. It exceeded forecasts of an increase of 4.8 million. Dudley’s dovish comments on the conditions being much tighter than during the previous meeting also had a negative impact on the US Dollar Index.

Impact on the market

Regarding ETFs, the PowerShares DB US Dollar Index Bullish ETF (UUP) fell by 1.7% on February 3, 2016. The WisdomTree Bloomberg US Dollar Bullish ETF (USDU) encompasses developed economies and emerging market currencies. It followed a similar trajectory and fell by 1.6%.

US stocks were on a positive trajectory on February 3, 2016. Lennar (LEN) and Toll Brothers (TOL) rose by 0.42% and 1.0%, respectively. Banking-related stocks followed a contrasting pattern. Bank of America (BAC) fell by 1.5%.

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