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The U.S. dollar, as measured by the DXY index, traded lower on Wednesday despite better-than-forecast PMI results. According to S&P Global, both manufacturing and service sector business activity accelerated at the start of the year, with the former entering expansionary territory and the latter reaching its highest level in seven months. Both indicators surprised to the upside by a wide margin.

The following image shows how January Flash PMI figures stack up against expectations.


Source: DailyFX Economic Calendar

Although encouraging macroeconomic data led yields to erase their early session decline, U.S. dollar remained comfortably in negative terrain. This reaction, however, could be temporary. When reality sets in and traders realize that the Fed will be unable to deliver deep interest rate cuts, as priced in by financial markets, we could see the greenback trend higher again.


A screen shot of a graph  Description automatically generated

Source: TradingView

Looking ahead, the focus will be on US fourth-quarter GDP, to be released on Thursday, and December personal consumption expenditures, due out on Friday. If incoming information confirms that the U.S. economy is powering through and that inflationary pressures remain sticky, the U.S. dollar may have the potential to mount a moderate comeback heading into the weekend.

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