June 5 (Reuters) – The dollar index fell 0.1%, shedding early follow-on gains from Friday’s robust payrolls report after ISM services data showed roughly 80% of the US economy struggled to avoid outright contraction, with the manufacturing sector already repeatedly signaling recession.
Treasury yields and the dollar traded earlier gains for losses as traders took note of the ISM’s employment index slide to 49.2 from 50.8, new orders retreat to 52.9 from 56.1 and prices paid at 56.2 from 59.6 and its lowest since May 2020.
The bigger concern is that the overall index at 50.3 leaves almost no margin of error before seconding the recessionary message from seven straight months of well below 50 manufacturing index readings, the worst streak since the global financial crisis.
Monday’s disinflationary data lent credence to Fed guidance last week that the board might skip a rate hike this month, at least interrupting the series of tightening moves since last March.
Friday’s payrolls beat, by 242k net of revisions, had made a skip seem somewhat premature, as did the surge in April job openings. But the unexpected 0.3% rise in May’s jobless rate, 310k rise in unemployment in the household survey and dips in average hourly earnings and hours worked kept the market pricing in a June skip, followed by most of a 25bp hike in July before rate cuts set in.
Those expectations haven’t changed much since the ISM services missed, but there’s now less willingness to forge ahead with new Q3 Treasury yield and dollar highs before next week’s CPI and Fed events.
EUR/USD finishing about flat, despite the ECB saying more hikes are coming.
Sterling recovered from 1.2370 to 1.2443 on the ISM news, losing 0.18%.
USD/JPY lost 0.25%, well off its 140.45 high and shy of 2023’s 140.93 peak.
(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)