The US dollar rose against world currencies Friday, as gold plunged to new five-year lows after PMI data from China and the Eurozone raised fresh concerns about a global economic slowdown.
The dollar index, a trade-weighted average of the US currency against six peers, strengthened to a high of 97.62 on Friday. It would subsequently consolidate at 97.47, advancing 0.4%. The index, which has been under some pressure as of late, has gained around 23 percent since July 2014.
In economic data, China’s manufacturing sector weakened to a 15-month low in July, fueling fears about a broader economic slowdown in the world’s second-largest economy. The preliminary China Caixin PMI fell to 48.2 in July from 49.4 in June. Analysts had expected an increase to 49.7. A reading below 50.0 signifies contraction in the manufacturing sector.
Eurozone PMI declined mildly in July, Markit Economics reported Friday. Markit’s Eurozone PMI composite, a measure of both services and manufacturing industries, weakened to 53.7 in July from 54.2 in June.
Germany’s PMI composite dipped to 53.4 in July from 53.7 in June.
Concerns about a protracted economic slowdown in parts of Asia and Europe weighed on precious metals on Friday and kept demand for the US dollar elevated. Gold futures plunged by more than $12 to $1,081.80 an ounce, the lowest level since February 2010. Copper also fell to its lowest level since 2009 following the China manufacturing report.
The dollar will likely continue to strength in the short-term as the Federal Reserve begins increasing interest rates later this year. On Thursday the Department of Labor said jobless claims fell to the lowest level since November 1973. According to analysts, solid jobs figures should give Fed policymakers enough scope to justify a rate hike by October at the earliest.
However, a stronger dollar is weighing heavily on Wall Street, with several multinational corporations reporting weaker second quarter earnings as a result of the exchange rate. American Express, Kimberley-Clarke, Johnson & Johnson and Pepsi Co. are just some of the companies that have been adversely affected by the strengthening dollar.
America’s major stock indices have been down most of the week as a result of dismal earnings. The Dow Jones Industrial Average has posted two triple-digit losses this week and is now trading in the red for all of 2015.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.