US dollar, Treasury yields sink on soft PMI data

Key points

• US Composite PMI for April (S&P Global) fell to 50.9, a 4-month low (0:28)
• The yield on the 10YR Treasury fell to 4.58% following PMI (1:52)
• EUR/USD hit 1.0700 (2:48)
• GBP/USD rose back above 1.2400 (4:02)
• Chances of a July rate cut from the Fed now near 50/50* (5:48)

*Probabilities calculated using the CME's FedWatch tool

US PMI falls to 4-month low

The Flash S&P Global PMI data for April revealed that the Composite, Manufacturing, and Services PMIs in the US all printed lower than anticipated, with the composite index hitting a four-month low at 50.9. Manufacturing was the lowest, dipping into contractionary territory at 49.9. This downturn indicates a potential cooling in economic activity, a first amid suprisingly strong US data so far this year.

Treasury yields fall from highs

Following the release of the disappointing PMI data, 10-year Treasury yields witnessed a decline of 7 basis points, dropping to 4.58%. This retreat from year-to-date highs near 4.7% reflects growing market concerns over US economic momentum, hinting at a possible reversal.

US dollar weakened against all major currencies

The weak US data prompted a reversal in the dollar's strength, notably pushing the EUR/USD pair back to 1.0700 and AUD/USD towards 0.6500. This reaction underlines the sensitivity of the forex market to the initial signs of an economic slowdown, particularly after a period of consistent gains for the US dollar fueled by previously robust US data.

GBP/USD rose back above 1.2400

The British pound emerged as a significant beneficiary, climbing 125 pips against the US dollar within 24 hours, fueled by positive UK PMI data released during the London session and then further propelled by the US's softer PMI figures. This move marks a bounce back from year-to-date lows reached on Monday under 1.2300 - as a result of dovish comments from BoE officials.

Chances of a July interest rate cut grows

Fed Funds Futures markets from the CME now forecast almost a 50/50 chance for a rate cut in July, marking a 5% increase from the previous day's expectations. September still appears to be the most likely date for a 25 bps cut, with two to three such cuts expected by year's end.

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