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Dollar Spikes From Near Two-Year Lows After Solid November PMI Tames Fed Action Bets

The U.S. dollar, hovering near the lowest since May of 2018, spiked higher Monday after a stronger-than-expected reading of business activity for the month of November.

The U.S. dollar surged from the lowest levels in nearly two years Monday following a stronger-than-expected reading of economic activity for the month of November that could delay any aggressive policy moves from the Federal Reserve.

The composite reading for IHS Markit's November purchasing manager's index jumped nearly a full point from last month to 57.7, the biggest increase in more than three years and well above the 50 mark that typically indicates economic growth.

The reading, as well as solid expectations for Black Friday and Cyber Monday sales, a red-hot housing market and improving jobless claims data, suggests the world's biggest economy is holding onto gains from last quarter despite a lack of fiscal stimulus from Congress and renewed monetary support from the Federal Reserve - as well as the relentless rise in coronavirus infections that have triggered lockdowns in key cities around the country.

"The upturn reflected a further strengthening of demand, which in turn encouraged firms to take on staff at a rate not previously seen since the survey began in 2009," said IHS Markit's chief economist Chris Williamson. “Firms are scrambling for inputs and workers to meet the recent growth of demand, and to meet rising future workloads.

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"Expectations about the year ahead have surged to the most optimistic for over six years, reflecting the combination of a post-election lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not too distant future,” Williamson added. 

The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, jumped 0.6% from its session trough of 92.02, the just shy of the lowest in two years, to change hands at 92.559 in late morning trading.

The dollar's jump could reflect investor expectations of the Fed's next move in December, its final policy meeting of the year, amid the ongoing deadlock in Washington between House Democrats and Senate Republicans over a multi-trillion stimulus package in the final days of the current lame-duck Congress.

Fed Chairman Jerome Powell has pressed lawmakers on the need for further support for several months, noting in October that ongoing recovery was "strong but incomplete".

Monday's PMI reading, however, as well as consistent breakthroughs in vaccine development from the likes of Pfizer  (PFE) - Get Pfizer Inc. Report, AstraZeneca  (AZN) - Get Astrazeneca PLC Sponsored ADR Report and Moderna  (MRNA) - Get Moderna, Inc. Report and near-record highs for stocks around the world, suggest that the Fed way wish to wait for the next Congress, due to sit in early January, before ramping-up any of its existing policy tools that typically weaken the greenback.