Weakest data since COVID Pandemic causing US dollar collapse
Recent US data shows the weakest performance since the COVID pandemic, signaling potential trouble for the US dollar and economy at large. Learn how a declining PMI and Fed rate cut threats are influencing the dollar's fall and driving investors to gold.
Key points
- US Services PMI signals contracting economy, hits lowest level since COVID
- Soft US economic data could bring more, earlier interest rates than previously expected
- US dollar weakening on decreased demand, fear of US economic recession
- Gold prices move toward highs on lower bond yields, decreased USD demand
US PMI data worst since 2020
The US ISM Services PMI dropped to 48.8 in June, indicating the service sector is contracting—a measure under 50 signifies economic contraction. This figure represents the lowest point since 2020, highlighting concerns about the strength of a key segment of the US economy that heavily influences overall economic health.
Is the US economy in trouble?
US PMI data has continuously declined from its 2021 peak, falling below the 50 threshold multiple times in 2024. This pattern suggests a potential weakening in the US economy, which could impact various sectors and overall economic stability. Weak economic data paired with high interest rates could mean volatility for the US.
US dollar weakens on soft data
The US dollar has weakened against a basket of major currencies, including the Australian dollar, British pound, and euro, following the release of disappointing PMI data. This decline suggests growing investor concerns about the health of the US economy and the impact on currency strength. Major pairs like AUD/USD are nearing the upside of this year’s range on a continuing trend of dollar weakness the last handful of weeks.
Why is US dollar falling?
The weakening US dollar is largely due to fears that ongoing economic softness could prompt the Federal Reserve to cut interest rates. Such a scenario would likely result in decreased demand for the dollar as lower interest rates make the currency less attractive to yield-seeking investors. While most major central banks are lowering interest rates at the moment, soft data like this could mean relatively more rate cuts from the Fed.
Gold prices rocket past $2,350
Amid concerns over softer global interest rates and declining currency demand, traders are increasingly investing in gold, driving its price above $2,350. Gold is often viewed as a safe haven during times of economic uncertainty, attracting increased demand in volatile markets. The precious metals market could see a further spark if interest rates continue to drop.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.