US dollar climbs to its highest point today as ISM data underscores economic strength

US Manufacturing Recovery Sparks Market Movement

Earlier today, I discussed renewed prospects in the long-struggling US manufacturing sector. Fresh data released today further highlighted signs of improvement in an industry that has faced prolonged downturns.

To begin with, S&P Global’s updated assessment of US manufacturing showed positive revisions. Additionally, the ISM manufacturing index posted its strongest growth since 2020, fueled by a surge in new orders.

These developments have caught the attention of both currency and bond traders. Yields on US 2-year Treasuries have climbed 4.1 basis points to 3.57%, while the US dollar has strengthened broadly. The euro, which recently peaked above 1.20 and briefly touched 1.2080, has since slipped below 1.18, marking its lowest point since January 23 as the rally reversed.

The dollar’s rally isn’t limited to the euro. Its gains are widespread across major currencies.

Notably, USD/CHF has risen by 1%, representing the largest percentage move among major pairs. Despite the US Treasury’s recent semi-annual report refraining from labeling any nation a currency manipulator—including Switzerland—the Swiss franc has weakened. On a longer-term chart, USD/CHF appears to be retesting the lower boundary of a six-month range that was breached last month.

This week is shaping up to be significant for the US dollar, with manufacturing data being just one piece of the puzzle. The upcoming non-farm payrolls report on Friday is highly anticipated, and all eyes are on Kevin Warsh, who may soon make his first public remarks as the newly nominated Fed chair. Every statement will be scrutinized, as new central bank leaders can easily send unintended signals to the market.

Furthermore, Powell has suggested that Federal Reserve officials are observing improvements in the US economy. If this sentiment becomes widespread, a more hawkish policy stance could emerge. Although markets are currently factoring in 48 basis points of rate cuts this year, continued strong data could quickly change those expectations.

In my view, the market is moving in that direction. For those looking to position themselves, bonds may offer the clearest opportunity—I anticipate seeing 2-year yields reach 4% before the year ends.