NZD/USD is displaying a back-and-forth action above the round-level resistance of 0.6300 in the early European session. The Kiwi asset is facing barricades in keeping its business above 0.6300 as the US Dollar Index (DXY) has extended its recovery above 102.20. The USD Index has stretched its recovery move amid a sudden rise in the odds of a 25 basis point (bp) interest rate hike from the Federal Reserve (Fed).

As per the CME Fedwatch tool, chances for one more 25 basis points (bps) rate hike to 5.00-5.25% have suddenly crossed above 58%. It seems that commentary from US Federal Reserve Board Governor Lisa Cook has provided a cushion to the USD Index. On Monday, Fed Governor Lisa Cook said that the US has low unemployment and high inflation. Thus, the Fed is currently focused on inflation and the disinflationary process is underway, but we are not there yet.  

Meanwhile, S&P500 futures are showing choppy moves in the early European session amid a lack of clarity for the Federal Reserve’s interest rate guidance, however, the risk appetite theme is still solid. Rising chances of consecutive 25 bps rate hike from the Federal Reserve are failing to provide support to US Treasury Yields. Yields generated on 10-year US Treasury bonds seem sideways above 3.42%.

US ISM Manufacturing PMI lands below 50.0 straight for the fifth month

The US Dollar Index witnessed a steep fall on Monday after the release of the United States ISM Manufacturing PMI data below 50.0, consecutively for the fifth time, conveyed that the US growth rate is expected to show a crackdown this quarter. The economic data contracted to 46.3 from the consensus of 47.5 and the former release of 47.7.

Also, New Orders Index contracted to 44.3 from the expectations of 44.6, which indicates that forward demand is expected to remain subdued. Weaker-than-anticipated US Manufacturing PMI has bolstered the chances of a recession ahead. Firms are struggling to extend their production as higher rates by the Federal Reserve are barricading them from tapping advances. Also, rising inflationary pressures are creating a lot of burden on households, which are struggling to offset the impact of inflated goods. This has stemmed to the need of pause rates sooner to infuse confidence among investors.