**U.S. Dollar Strengthens on Stronger-Than-Expected PMI Data: In-Depth Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
*Author: Vladimir Zernov (Content adapted and expanded from FX Empire)*
The U.S. dollar witnessed notable gains in forex markets following the release of solid U.S. Composite PMI data, which exceeded economist expectations. The robust economic indicators served as a catalyst for further strength in the greenback, reinforcing investor sentiment in favor of the U.S. currency. As the PMI results injected renewed optimism into the market, major currency pairs such as EUR/USD, GBP/USD, USD/CAD, and USD/JPY experienced significant movements. This article provides an in-depth analysis of these key forex pairs, with a closer look at how the recent data influences trading dynamics.
## U.S. Composite PMI Data: Key Driver of Dollar Strength
The U.S. Composite PMI, a leading indicator of economic health that combines both the manufacturing and service sectors, surged beyond projections. The stronger figure signals that the U.S. economy continues to expand, reinforcing investor belief in the resilience of domestic economic conditions despite global uncertainties.
Key insights from the PMI release include:
– **Composite PMI came in at 54.4** for May, landing firmly above the 50 mark that separates expansion from contraction.
– The **Services PMI was reported at 54.8**, indicating robust performance in the service sector.
– **Manufacturing PMI posted a reading of 50.9**, showing moderate improvement and remaining above the neutral threshold.
These figures provided traders with confirmation that the U.S. economy is maintaining strong momentum. As a result, the U.S. dollar index (DXY), which measures the dollar against a basket of major currencies, climbed higher on the session.
## Broader Market Reaction
The solid economic print brought about a shift in expectations regarding the Federal Reserve’s monetary policy trajectory. Traders interpreted the strong PMI data as a signal that the Fed may maintain higher interest rates for an extended period to manage persistent inflationary pressures and prevent overheating in the economy.
Immediate market responses included:
– A **rise in U.S. Treasury yields**, with the 10-year note approaching recent highs.
– **Stock markets showed mixed behavior**, with tech-heavy indices retreating slightly due to rate-sensitive valuations.
– **Commodity prices weakened**, largely due to the firmer dollar making dollar-denominated commodities more expensive for foreign buyers.
## EUR/USD: Euro Pressured as Dollar Garners Strength
The EUR/USD declined in response to the U.S. PMI data as the dollar’s strength overshadowed economic signals from the eurozone. Although the eurozone also reported PMI figures, the data failed to match the U.S.’s outperformance.
Key levels and observations:
– **Support near 1.0840** held initially before prices fell toward **1.0810**.
– The pair continued trading within a descending channel on the hourly chart.
– **Short-term sentiment favors the dollar**, especially as European Central Bank rate expectations diverge from the hawkish Fed outlook.
– Buying interest remains subdued unless the pair can sustain momentum above **1.0850** resistance.
Technical perspective:
– Momentum indicators suggest bearish pressure in the near term.
– Traders will be watching the **1.0800 psychological barrier** as the next line of defense for bulls.
– A clean break below 1.0800 could open the door toward **1.0750** and lower.
## GBP/USD: Pound Falls Despite Positive U.K. Economic Data
The British pound also succumbed to dollar strength, despite supportive domestic economic figures. The U.K. Composite PMI was slightly lower than the prior month’s reading, but still suggested economic expansion.
Details and technical levels:
– GBP/USD slipped toward **1.2700**, with failed attempts to reclaim **1.2750 resistance**.
– U.K. Services PMI came in at **52.9
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