The US dollar is forming a bottom at the current stage of economic recovery. In the earlier phase of recovery, manufacture was the first to rebound while the service industry remained sluggish due to lockdown and social distancing rules; the DXY index declined to around 90 to 92. As vaccine rollouts accelerate, services are reopening.
If, in the second half of the year, service output exceeds manufacturing output and continues to rise, DXY index could head upwards as global investment returns to the US.
Insight & chart provided by user Shasterd
The correlation between the two industries and the US dollar
See chart: Service minus Manufacture
The US’s GDP is 70% consumption and 80% service output. Consumption spending in the service industry accounts for over 60% of overall personal consumption spending. On the other hand, most emerging economies are manufacture-centered. So, in simple terms, the correlation between the US dollar and the two industries can be put this way:
When service outgrows manufacture, investment returns to the US and US dollar rises.
When manufacture outgrows service, investment shifts to the EM and US dollar declines.
Indicators for the two industries
We use "ISM NMI" to represent service and "ISM PMI's new orders" for manufacture. When the difference widens, service expands faster than manufacture.