Sell-off in Digital Money Increases USD’s Attractiveness
The end of the week was marked by the release of the worse-than-expected economic data. The disappointing reports benefited the US dollar. Before the unveiling of the data, analysts suggested that if upcoming reports showed that the global economy was recovering at a fast pace, foreign currencies would strengthen against the greenback. If the reports confirmed the prospects of the economic recovery, money would flow out of the American dollar to its peers.
The new economic data, however, fell short of analysts’ expectations. The Purchasing Managers’ Indexes (PMIs) reports from the Eurozone, UK, and Australia came in mixed, discouraging investors from trading these countries’ currencies at high levels.
The data showed that Australia and New Zealand were the worst performers. In Australia, service sector activity slowed down in May and pushed the composite index from 58.9 to 58.1. Other figures coming from Australia were positive: there was a strong growth in retail sales. Consumer spending rose 1.1% in April, which is two times more than was expected. Yet the service sector disappointed investors so strongly that the more positive data failed to improve their spirits.
Although Eurozone PMIs were strong, regionally Germany demonstrated a slowdown in manufacturing activity and thus pushed the composite index below investors’ expectations. Investors’ disappointment reflected badly on the euro that was sliding throughout the session in New York. In the United Kingdom, service sector activity also fell short of investors’ predictions, but manufacturing activity proved to be robust and lifted the overall UK PMI composite.
Investors had various reasons to sell the US dollar. Treasury yields dropped, existing home sales were weaker than anticipated, and stocks rallied. But then investors compared the consistent improvements in Markit Economics’ US PMI reports with the worse-than-expected data coming from abroad. The value of the dollar immediately increased in their eyes. They changed their mind about selling it, especially because of the sell-off in cryptocurrencies. When digital tokens began to slide, the greenback regained its reputation as a haven currency.
