As a summation of last week however, the US Dollar weakened against all of the major currencies on Friday, continuing the trend for the week. Despite US data being largely positive, dovish comments from the Fed have again provided the trigger for a bout of general USD weakness. The president of the New York Fed has declared current high unemployment and low inflation ‘unacceptable’, warranting ‘further action unless the outlook improves’. His counterpart at the Chicago Fed further echoed these comments. These hints at further monetary easing weighed heavily on the Dollar, which as an index against other currencies fell 1.6% over the week, to its lowest level in 8 months. Indeed whilst the Euro has been steadily chipping away at the Dollar in light of this, it is domestic speculation regarding further Quantitative Easing for the UK throughout last week that held Sterling from making further gains against the greenback.
After further PMI reports for the UK and Eurozone on Friday, it is possible to paint a global picture from these indices worldwide. The sum of the purchasing managers’ reports from around the world suggests that growth has slowed, but not so immodestly as to sustain fears of the dreaded double-dip relapse into renewed recession. The September global manufacturing PMI index fell to 52.5 from 53.7 in August. Nevertheless, the index still stood above the 50 break-even mark and the survey’s long-run average (51.7). This is consistent with a further slowdown in industrial production momentum, but still an expansion: slower growth is not the same as no growth.
Yesterday and overnight, with traders taking profits on recent moves, the euro has slipped back from yesterday’s 6½ month high of close to $1.38 versus the dollar. However, even accounting for today’s key data from the Eurozone and the US, the euro remains well supported versus the USD on expectations that the Federal Reserve will initiate a second round of quantitative easing to support the faltering US recovery.
The main news story overnight, however, was the yen coming under some selling pressure after the Bank of Japan announced that it was trimming its key interest rates to 0 – 0.1% from 0.1%. The moves were more aggressive than markets had been anticipating, with the central bank also saying that it plans to keep interest rates at zero until prices have stabilised. While the dollar rose versus the yen on the announcement, the gains were limited, though traders are saying that the policy moves should help reduce the risk of USD/JPY falling below Y83.
Today, the Reserve Bank of Australia has elected to keep rates on hold at 4.50%, instead of an anticipated rise of 0.25%, the Aussie Dollar weakening around two cents against Sterling on the back of this. We have had encouraging PMI Services data for the Eurozone, the main remaining data releases of the day being EU retail sales, UK PMI services data, and the ISM non-manufacturing index for the US.