EUR / USD
There was a downward revision to the Euro-Zone services-sector index to 52.7 from the flash reading of 53.0, although this was still an 8-month high while there was again a strong rate of increase in price increases which will keep the ECB on high inflation alert. Latest data indicated that European gas inventory levels are at record highs for this point in the winter season, maintaining downward pressure on prices which will also underpin the economic outlook.
Narrow ranges prevailed into the New York open with the Euro holding a firm tone, but unable to make any significant headway.
The US ISM non-manufacturing PMI index declined marginally to 55.1 for February from 55.2 the previous month, but above consensus forecasts of 54.5. There was a slowdown in business activity for the month while new orders increased at a faster rate on the month.
There was a stronger rate of growth in employment for the month while supply constraints eased slightly and the prices index retreated slightly to 65.6 from 67.8 previously. Although this was the lowest reading for two years, the overall rate of increase was still relatively high in historic terms.
The overall market impact was mixed, but the dollar secured a tentative net advance in an initial reaction.
The Euro briefly dipped below 1.0600 against the US currency, but then rallied to 1.0630 as Wall Street posted net gains and defensive dollar demand faded.
Although Fed rhetoric remained hawkish, the dollar was unable to gain significant traction and the Euro traded just below 1.0650 on Monday.
The yen regained some ground ahead of Friday’s New York open and the dollar dipped to lows around 135.80. Treasuries were able to make some headway with the yen also demonstrating some resilience. According to the Federal Reserve semi-annual report, the labour market remains extremely tight and there is still a significant labour-supply shortfall. It added that further rate increases will be needed to bring inflation under control.
The dollar briefly recovered to the 136.40 area after the US data, but gradually dipped back below the 136.00 level amid a wider US retreat as Treasuries regained some ground and the 10-year yield dipped back below the 4.00% level.
Fed rhetoric remained under close scrutiny. Richmond Fed Barkin stated that the central bank can raise rates further than forecast if inflation persists.
San Francisco Fed President Daly stated that the central bank would adjust the rate path higher and longer if the next inflation data is hot and further tightening will probably be necessary, but she added that anecdotes from business leaders suggest inflation is slowing more than recent data suggests.
Wage negotiations will be watched closely with unions demanding the strongest increase for 25 years which could potentially support the yen to some extent.
The yen was resilient on Monday with the dollar trading around 135.60 with some caution ahead of Friday’s monetary policy decision.
The UK services PMI index was revised slightly higher to 53.5 from the flash reading of 53.3 with new orders growth hitting a 9-month high. The rate of increase in input costs slowed to a 20-month low, but there was still a very rate of increase in output charges. Sterling overall was held in relatively tight ranges during the day.
There was further speculation that the government would increase energy-support payments for the second quarter in order to prevent a further increase in retail energy prices. The latest YouGov survey recorded an increase in 1-year inflation expectations to 5.6% from 5.4% with long-term expectations increasing to 3.8% from 3.5%.
Sterling moved back above the 1.2000 level against the dollar, but initially failed to hold the gains while the Euro retreated to 0.8850.
Overall risk trends remained important and a rebound on Wall Street pushed the UK currency to 1.2040.
There was little net change on Monday with market still wary over risk conditions and Sterling traded around 1.2035 against the dollar with the Euro just below 0.8850.
The Swiss franc was able to maintain a firm net tone on Friday with the Euro retreating to near 0.9950 while the dollar was unable to hold above the 0.9400 level and dipping to 0.9365 as the Wall Street close. There was further underlying uncertainty over global economic dynamics.
The latest Swiss inflation data will be watched closely on Monday with the annual rate forecast to decline to 3.1% from 3.3% previously.
The dollar was little changed around 0.9360 on Monday as markets overall were held in relatively tight ranges.