Key U.S. manufacturing activity indicators unexpectedly rebound strongly into expansionary territory, dollar index surges

The U.S. dollar index fluctuated higher during the day, suddenly rising straight up during the New York session, as the Manufacturing Purchasing Managers Index (MPMI) of the Institute for Supply Management (ISM) rebounded sharply and returned to the expansion range for the first time since November 2022. As the U.S. dollar rose sharply, non-U.S. currencies fell across the board, with the pound sterling and the New Zealand dollar leading the declines.

In fact, before the data was released, most market participants expected the Federal Reserve (Fed) to cut interest rates in June. As of press time, CME Group's (CME) Federal Reserve Interest Rate Watch Tool (FedWatch) showed that the market expected the probability of a rate cut in June to be 68.5%, compared with 57% at the end of last week.

>> "The Fed's willingness to tolerate inflation well above 2% while still considering cutting interest rates has supported risk assets," said Moh Hiedin, chief economist at Bank of Singapore.

>> Strategists at CitiGroup said in a report: "The Fed is still expected to start cutting interest rates in June. If economic activity continues, the Fed may cut interest rates three times this year. But expectations of further weakness in the labor market have made We expect five interest rate cuts this year."

After the release of strong ISM manufacturing PMI data, it is consistent with the outlook pointed to by a series of major economic activity indicators and inflation indicators recently released - that is, the Fed should indeed remain patient, otherwise it may face the risk of a rebound in inflation, which means After hastily cutting interest rates, it will have to raise interest rates more significantly in the future - just like its neighbor to the north, Canada (CAN). Furthermore, bears are also so vulnerable because of deep fear of this Friday's super data - the Employment Situation Report (ESR) - which is likely to far exceed expectations as it has so often happened over the past two years, meaning that Even if the Fed wanted to, it would not dare to risk cutting interest rates early.