- Commodity currencies pressured by weak overseas data – Aussie hits 6-week low
- USD strengthens on positive PMI data
- Euro slides to 2-week low on soft German data
USD – The dollar strengthened slightly this morning despite negative manufacturing data released today. US Manufacturing Purchasing Managers Index (PMI) fell to 52.0 this month from 54.6 in March. This number was the slowest reading since October 2012, as demand from domestic customers fell, suggesting the American economy is losing momentum in the start of the second quarter. Output slipped to 53.6 from 56.6, its weakest rate of growth since last November. Major economies in North America, Europe and Asia have lost momentum this month, according to business surveys, raising concerns about the strength of the global recovery. Markets will eye U.S. GDP data due on Friday which is expected to show the U.S. economy expanding at a 3.0% annualized rate in the first quarter, rebounding from a weak performance in the final three months of 2012.
EUR – The euro dropped to a two-week low against the USD after weak German PMI data raised concerns about the health of the Eurozone economy, reviving speculation that the European Central Bank could cut interest rates. Data showed Germany's private sector shrank for the first time in five months in April, overshadowing improvements in French data. The soft German data added to worries about the global economic outlook after earlier figures showed Chinese manufacturing growth slowed in April. Comments on Monday from ECB policymakers about falling inflation and poor growth prospects in the Eurozone suggested the central bank may be leaning toward a cut in its main refinancing rate, which stands at a record low.
GBP – The sterling fell to its lowest in nearly three weeks against the dollar as worries about growth in China and the Eurozone underpinned demand for more liquid currencies like the USD and the JPY. The UK’s credit standing suffered a hit last week when Fitch Ratings cut its rating to AA-plus from AAA. Standard & Poors took a similar action in February. Market participants remain on the side-lines before the first estimate of British GDP due on Thursday. Fresh evidence that the economy has fallen into a recession would keep alive chances of more quantitative easing by the Bank of England later this year, after the new Governor Mark Carney takes office in July. On the other hand, if the economy shows progress, the pound may get a brief lift.
JPY – The yen, which typically rises as investors seek safety during times of heightened concern about the global economy, recovered broadly against the commodity currencies. The USD/JPY has faced stiff resistance at the 100 yen level, but most analysts and traders still believe it is on track to scale this peak. Strategists said the yen could take its cue from the next batch of Japanese capital flows data due on Thursday. A focal point for the yen is whether the BoJ's aggressive monetary easing will prompt Japanese investors to increase their purchases of higher-yielding overseas assets. Investors will look to the BOJ's policy meeting for clarity on how policymakers intend to implement the easing measures when they meet tomorrow.
Commodity Currencies – The Canadian dollar strengthened against the USD after domestic retail sales data for February rose by a stronger-than-expected 0.8%. The dip in the Chinese manufacturing data and falls in commodity prices pushed the Australian dollar to a 6-week low against the USD. The New Zealand dollar slid 0.5%, well off a 20-month high breached just over a week ago. The Aussie and kiwi dollars are very sensitive to news out of China, a key export market. Investors are waiting for the Reserve Bank of New Zealand's policy meeting on Wednesday, which is expected to see the key rate held at record lows for the remainder of the year.
For more market reports go to Union Bank of California