On March 3, data released by the Institute for Supply Management (ISM) showed a significant surge in the manufacturing input price index, which jumped by 11.5 points to 70.5, reaching its highest level since the peak of overall inflation in 2022. Meanwhile, the ISM manufacturing activity index remained at 52.4, staying in expansionary territory for the second consecutive month and approaching recent highs. New orders and production growth remained robust. Following the data release, U.S. Treasury yields rose, while the S&P 500 index extended its decline. Analysts pointed out that with oil prices recording their largest single-day gain since the outbreak of the Russia-Ukraine conflict in 2022, the ISM price index may remain elevated or even rise further in the short term. Rising energy costs have become the latest challenge for manufacturers. If the high-cost trend persists, companies may be forced to pass these costs on to downstream customers and consumers.
Additionally, former U.S. Treasury Secretary and former Federal Reserve Chair Janet Yellen stated that the duration of the impact of the Iran conflict on oil markets will determine the extent of its drag on U.S. economic growth and inflationary pressures, making the Fed's decision-making more complex. Yellen made these remarks during a virtual conference in Long Beach, California, noting, "I believe recent developments in Iran have made the Fed more inclined to hold steady, and they will be more cautious about cutting interest rates than before the event." Yellen highlighted that U.S. inflation remains about one percentage point above the Fed's 2% target. She indicated that markets are concerned about inflation remaining elevated for an extended period, complicating policy trade-offs. As a result, the Fed may be more inclined to keep interest rates unchanged.
Key data to watch today include the Eurozone's harmonized CPI year-on-year for February, the revised U.S. durable goods orders month-on-month for January, and U.S. factory orders month-on-month for January.
U.S. Dollar Index The U.S. dollar index rose sharply yesterday, breaking above the 98.00 level to hit a 6-week high. It is currently trading around 98.50. The primary driver behind the index's climb was heightened risk aversion due to escalating tensions in the Middle East. Additionally, diminishing expectations for a Fed rate cut provided further support. Positive economic data released during the session also contributed to the index's strength. Today, resistance is expected near 99.00, while support lies around 98.00.
EUR/USD The euro fell significantly yesterday, dropping below the 1.1700 level to hit a 6-week low. It is currently trading around 1.1700. The main factor pressuring the euro was the U.S. dollar index's surge past 98.00, driven by safe-haven demand and reduced expectations of a Fed rate cut. Weak retail sales data from Germany released during the session also weighed on the pair. Resistance is anticipated near 1.1800 today, with support around 1.1600.
GBP/USD The British pound experienced a downward trend yesterday, hitting an 11-week low. It is currently trading around 1.3420. The primary factor behind the decline was the U.S. dollar index reaching a 6-week high, fueled by geopolitical tensions and reduced expectations of a Fed rate cut. Weak economic data from the U.K. released during the session also added pressure. Furthermore, expectations of a Bank of England rate cut and concerns over political uncertainty in the U.K. contributed to the bearish sentiment. Resistance is expected near 1.3500 today, while support lies around 1.3350.
