**USD Selloff Slows Amid Mixed ISM Data and Trump-Fed Headlines**
*Originally reported by Justin Low via Forex Factory*
The US dollar began to stabilize on Monday, following last week’s pronounced selloff. Market activity was relatively subdued ahead of a significant lineup of data releases scheduled for the rest of the week, including the all-important US jobs report on Friday.
Key themes emerged during Monday’s trading, including mixed signals from the latest ISM Manufacturing PMI, growing political noise involving Donald Trump’s economic plans, and a cautious tone ahead of key Federal Reserve developments. Investors seemed content to await further clarity before making decisive moves, resulting in modest price action across most major currency pairs.
Below is a comprehensive breakdown of the current landscape affecting the USD and broader FX market:
## ISM Manufacturing PMI: Mixed Messages for the Greenback
The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) for May posted a reading of 48.7, falling short of expectations of 49.6 and the prior figure of 49.2. This marked the second consecutive month the index remained below the critical 50.0 level, indicating ongoing contraction in the manufacturing sector.
However, not all subcomponents of the report were disappointing:
– **Prices Paid** rose to 57.0 from 60.9, indicating further cost pressure and possibly signaling higher inflation in inputs.
– **New Orders**, a key forward-looking indicator, edged up to 45.4 from April’s 45.1, still in contraction but showing signs of resilience.
– **Employment** stayed weak at 51.1 but reflected only a marginal change from April’s 48.6.
The mixed nature of the data created some indecision among traders:
– On one hand, the soft headline number reinforced concerns that the US manufacturing sector remains under pressure, damping demand for the US dollar.
– On the other hand, firming inflation components contributed to expectations that the Fed is still not free to begin rate cuts in the near term.
## Market Response to ISM Data
Initially, the ISM release triggered a dip in the US dollar, with traders responding more to the soft headline reading than any inflation-related sections. However, as the market digested the full report, dollar losses were pared back:
– EUR/USD briefly moved higher, testing the 1.0900 level but failed to extend gains as dollar bids returned.
– GBP/USD followed a similar trajectory, rising towards 1.2800 before moderating.
– USD/JPY saw limited volatility, remaining well-supported above 156.50, helped by the wide US-Japan rate differential.
Treasury yields displayed minor weakness initially but reversed course during the NY afternoon session:
– The 10-year yield slipped to around 4.38% following ISM but rebounded toward 4.41% later in the session.
Stock markets were mixed, with investors still parsing what the data meant for broader economic growth and the likelihood of imminent monetary easing.
## Trump Headlines Add Political Uncertainty
Overnight trading also saw a spike in activity following weekend reports detailing former President Donald Trump’s policy ideas in the event of a reelection victory in November. Focus centered on aggressive changes to the Federal Reserve’s structure and strategy:
– Trump is considering a plan to remove Jerome Powell from the Fed chair position before the end of his term if reelected.
– He is also reportedly seeking more influence over monetary policy, with some aides suggesting that the White House should play a closer role in decisions normally handled independently by the central bank.
– Plans for significant tariff increases and tax cuts on income also form the backbone of Trump’s potential economic agenda.
Markets are still absorbing these reports, but the implications are clear:
– **For the dollar:** Increased political interference in Fed policy could undermine investor confidence in the independence of US monetary policy.
– **For markets:** Risk sentiment could deteriorate if Trump’s proposals are seen as dangerous to
Read more on EUR/USD trading.