United States FX Today: Dollar weakens as traders eye PMI data for growth clues

The US Dollar (USD) is weakening slightly on Monday, with the US Dollar Index (DXY) losing 0.2% in the day, as traders await the release of the flash S&P Global Purchasing Managers Indexes (PMIs) for September, scheduled for Tuesday at 13:45 GMT.

Investors are assessing the contradictory forces weighing on the Greenback. On the one hand, the US economy continues to surprise with its resilience, with the third quarter well underway, according to the latest PMI data.

On the other hand, worries about inflation and the lingering effects of tariffs are fuelling caution.

The US Dollar is therefore hanging on the next activity indicators, which could confirm or deny the current momentum.

US PMIs under scrutiny: Momentum or slowdown?

The S&P Global PMI data due on Tuesday for September will be decisive in gauging the state of the US economy as the quarter draws to a close.

The consensus is for a stable Composite index at 54.6, a decline in the Manufacturing index to 52 (from 53 in August), and a fall in the Services index to 53.9 (from 54.5 previously). Although still in the expansion zone (above 50), these figures could signal a slowdown in growth.

In August, the PMIs painted a mixed but generally positive picture. In the manufacturing sector, the index climbed to 53, marking its best performance since May 2022.

"The last three months have seen the strongest expansion in production since the first half of 2022", noted Chris Williamson, Chief Economist at S&P Global Market Intelligence. He also pointed to a marked rebound in employment and a rise in inventories, fuelled by fears over prices and supply chains.

However, this dynamism is partly attributable to inventory accumulation, a defensive strategy by businesses in the face of tariff-induced cost increases. 

The latter, decided in the wake of the protectionist measures of US President Donald Trump's administration, have been cited by many companies as the main factor behind the rise in input prices.

One of the key findings of previous PMI surveys is the divergence between current, rather solid growth, and companies' waning confidence in the future. The business sentiment fell to a four-month low in August according to the S&P Global survey, fuelled by fears of persistent inflation and an unclear regulatory framework.

Wage dynamics in services, combined with rising input costs, continue to fuel high producer price inflation, although this has eased slightly since July.

"The survey data point to downside risks to growth and upside risks to inflation", warns Williamson.

Technical analysis of DXY: US Dollar re-enters bearish channel

US Dollar Index 4-hour chart. Source: FXStreet.

The rebound in the US Dollar Index that followed last week's Federal Reserve (Fed) decision is beginning to show signs of weakening, after peaking at 97.82 earlier on Monday.

As a result, the Greenback could resume its short-term downtrend within the bearish channel visible on the 4-hour chart.

An exit from this channel, with support at 97.05 and resistance at 98.30, is therefore necessary to envisage a reversal to the upside, or an acceleration to the downside for the USD.

A breakout below would put the September 17 low at 96.22 in sight, while a breakout above could restart the rebound towards the August 1 peak at 100.26.