The US dollar has eased to new lows for the week against the euro and yen. There does not seem to be a big fundamental driver. If anything the weakness in German exports, following as it does the soft orders and industrial output data, warns the European locomotive may be slowing, and would seem to be euro negative.
Since the Federal Reserve left rates on hold on September 17, the dollar-bloc currencies have outperformed the euro, yen, and sterling, all three of which are lower against the dollar. So far this week the New Zealand dollar is the strongest, rising 2.8%, followed by the Australian dollar’s 2.1% gain. The Canadian dollar is up 1%.
The US dollar’s recovery gains pared following the drop in response to the poor jobs data, except against the yen. There the greenback extended its gains toward JPY120.25, with the help of weak Japanese data, and speculation that the BOJ will revise down inflation forecasts this week, setting the stage for an expansion of QQE later this month.
The unexpectedly poor September US jobs data weakened the greenback’s technical tone, as questions about the underlying strength of the world’s largest economy, and the implications for the Fed’s take-off, intensify. US economic data scheduled to release in the week ahead are not of sufficient heft to alter the pessimism spurred, but not caused, by the jobs data. Recall that earlier in the week, the US reported it new flash reading on merchandise trade. The unexpectedly large deficit caused the Atlanta Fed’s GDPNow to halve its estimate for Q3 growth to 0.9
The global capital markets are stabilizing in Europe after continued selling in Asia after the US slide yesterday. The dollar is narrowly mixed against the major currencies. Higher oil and copper prices have helped the helped steady the Australian dollar. After briefly dipping below $0.6940, it recovered to $0.6985 in the European morning. The US dollar recorded new multi-year highs against the Canadian dollar near CAD1.3430, before pulling back to CAD1.3400.
Sterling and the yen are gaining against the dollar while the other major currencies are little changed, and emerging currencies are mixed. Sterling’s has gained about 0.35%, mostly in the European morning, and appears largely driven by demand on the crosses, especially the euro. It is still within the pre-weekend ranges against the US dollar and euro.
While many Americans breathed a sigh of relief after the US Federal Reserve (Fed) announced that it would not be increasing the prime rate this month, the decision also had ramifications for other nations. As a result, the head of the World Bank praised the Federal Reserve’s decision, saying it will grant a temporary reprieve to developing nations and struggling economies around the world.
China and Europe are seeing lower manufacturing activity, with the sector declining in China and expanding weaker than expected in Europe.
According to the Caixin China purchasing managers’ index, demand for manufactured goods is shrinking. The PMI fell to 47, the lowest level in over six years. The Caixin PMI, which tracks small and mid-sized companies, is a crucial indicator of broader activity in the country, where small businesses are more susceptible to weakness in local aggregate demand.
Government Intervention, Analyst Downgrades
The world economy has seen many changes this year. Interestingly, in many cases theory seemed far from what happened practically in the global financial markets. While many questioned the effect China on various economies, Eurozone was going through its own tough phases with Greece in turmoil and an ongoing refugee crisis.
After a few sessions of light news, the flash Chinese Caixin flash manufacturing PMI and EMU PMIs provided new economic insight. However, the macro-picture has not changed very much. China’s economy has not bottomed while European growth appears to remain largely steady.
Asian equities fell, following the US slide and the disappointing Chinese news, but after a soft start, European bourses turned higher. European bonds yields are mostly 2-3 bp higher.
