The US dollar remains under pressure as the divergent outlook in monetary policy across central banks continue to underpin currency movement. The euro extended its recent gains, just ahead of the yearly high near $1.386, supported by better-than-expected economic data. Sterling, remains firm breaking through $1.63 and reaching a new 13-month high as the market remains optimistic about a BoE rate hike.
Nearly every euro zone country that reported a manufacturing PMI came in above market expectations. Both the German and French series beat the flash report out last week. Germany posted a new record high. The overall euro zone reading matched the flash at 59.0 from 57.3 in January, which is the best since June 2000.
The strength of some of the periphery PMIs, such as Ireland to 56.7 from 55.8, its highest since 2000, must be seen as a favorable development. Even Spain’s headline that ticked up ever so slightly to 52.1 from 52.0 is the strongest in 10-months. On top of this Germany reported joblessness fell 52k in February, more than three times better than the market expected.
Tomorrow, the EMU PPI (10:00 GMT) is expected to show an increase of 1.1% for January compared to the .8% increase for December.
Despite the strong data, the EUR/USD was unable to break through resistance at 1.3860. A close above this level should drive the currency pair to 1.4250 resistance.
UK PMI was also better than expected at 61.5, the same as in January. This number should boost the sense that the Q4 contraction is not being repeated in Q1. On the margin, the risk of a surprise rate hike from the BOE next week appears to have risen.
The Pound pushed through resistance, but was unable to close near its highs.
U.S. manufacturing grew at the fastest pace since 2004. The Institute for Supply Management’s factory index increased to 61.4 in February from 60.8 a month earlier, economists projected a gain to 60.7, according to the median forecast. Estimates of the 77 economists ranged from 58.7 to 63.3. The better than expected data, failed to lift the dollar against most major currencies.
Tomorrow traders will focus on the ADP Employment report (13:15 GMT). Expectations are for an increase of 184 thousand jobs compared to the 187 thousand increase in January. Jobs have lagged in the US recovery, and a better than expected number should help the dollar.
