USD weakens as Dallas Fed manufacturing rebounds sharply to -1.2

The US dollar has softened across major pairs following the Dallas Fed Manufacturing Index's significant improvement to -1.2 in January from -11.3 previously, beating expectations of -10.9. The report revealed broad-based strength with production surging to +11.2 from -3.0, new orders jumping to +11.8 from -6.6, and employment expanding to +8.2 from -1.4. Capital expenditure also turned positive at +7.1 versus -4.6 prior, while the outlook improved to +2.9 from -12.3. Despite the positive manufacturing data, the dollar's reaction suggests markets are focusing on the index remaining in contractionary territory below zero. The improvements point to stabilization in the manufacturing sector, potentially reducing pressure on the Federal Reserve for aggressive rate cuts. Traders should monitor key support levels on USD pairs as the market digests this data ahead of upcoming FOMC decisions.