The dollar has softened marginally in Europe after China released an encouraging set of February PMIs. There were strong rebounds for both the manufacturing and service sectors which are feeding the narrative that a 2023 China recovery is the real deal. There isn’t much happening in the U.S. today. The US releases ISM manufacturing data which should remain soft at 48. More interest will be had in Friday's services ISM. We suspect the China PMI story might dominate FX trading today and maintain a slightly offered tone for the dollar.
Canada sees the February manufacturing PMI. It is not typically a market-mover. That said, it fell for the last five months of 2022 before rising back above 50 in January for the first time since last July. The US dollar closed firmly yesterday, but remained within the range set on Monday, which was within Friday's range. Last's Friday's high, which was the greenback's best level since early January, was near CAD1.3665 and the January high was closer to CAD1.3685. Look for the CAD to range trade on broader market themes. Observe the USD/CAD trends.
EUR/USD got a lift yesterday from data showing Spanish February core inflation pushing to a new cycle high. Tomorrow's eurozone core CPI data is expected at 5.3% year-on-year. The worrying trend in prices continues to feed into European Central Bank expectations where the market looks to be pricing an extended tightening cycle into 2024, with the deposit being raised as high as 4.00%. The continued re-pricing of the ECB curve is providing EUR/USD with some support against higher US rates and suggesting 1.05 will be the bottom of the EUR/USD's first quarter range. Today, we have a few ECB speakers and we should expect a relatively quiet 1.0565-1.0645 range for EUR/USD.
Yesterday, we wrote a piece on what the new Northern Ireland deal meant for the pound. While welcome news, we doubted that it would prove a game changer. We think the small rally in the pound that was seen (and has since partially reversed) is probably sufficient in that it reflects a warmer political relationship between the UK and the EU. Today look out for a speech by Bank of England Governor Andrew Bailey. Money markets price the Bank Rate at 4.75% into September. GBP/USD could drift back to 1.2100 on the slight dollar weakness.
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