The US dollar was flagging again on Tuesday morning, giving up the small gains it had made the day before, as markets prepared for the release of more PMI data later.
Moving up against the USD, the Japanese yen was up 0.64% to 129.8, the pound up 0.29% to 1.2409 and the euro climbing 0.23% to 1.0894.
The dollar index (DXY) was down 0.32% at 101.81, having oscillated around the 102 mark for almost two weeks now.
EUR/USD was not able to hold its move above 1.09 yesterday but the release of ‘flash’ purchasing managers index survey results today have the potential to inject some new juice into currencies.
Providing "an initial steer on how the global economy is performing into 2023", said Deutsche Bank, flash PMIs for manufacturing, services and composite indices have already been released this morning for the likes of Japan and Australia, "which have added to that picture that the global economy might be faring worse than feared".
The release time is 9am GMT for the EU figures, with UK PMIs at 9.30am and the US at 2.45pm.
“It’s become increasingly clear,” said analysts at ING, “that larger swings in the dollar are now driven by data releases given the market's heightened sensitivity to the US growth story ahead of next week’s Federal Open Market Committee (FOMC) meeting.”
Preliminary PMIs releases, while not being as highly regarded as the ISM in the US, could still have an effect on the dollar due to that elevated sensitivity to data, the ING team added.
“Some improvement in the market’s sentiment around the health of the service sector in the US should help limit downside exposure for the dollar. In that case, DXY may hold around 102.00 today unless PMIs in Europe surprise to the upside. Richmond Fed manufacturing data is the other release in the US calendar today.”
Advances were also being made by EUR, dancing 0.46% higher against the Turkish lira and 0.33% rise versus the rand.
The single currency was being helped by European Central Bank officials fighting back against speculation of a smaller 25-basis points hike since the weekend.
Elsewhere in the G10 currencies, the Aussie dollar broke above 0.7000 against USD yesterday, back as the most popular long trade in 2023 so far.
Tonight/tomorrow morning’s CPI data there will be the next trigger for more moves, especially if inflation is proving sticky and the market decides against its recent opinion that the central bank may need to delay the expected pause in its rate-hiking cycle.
Australia’s manufacturing PMI last night/this morning slipped below 50, into the contraction zone for the first time in 32 months, but business confidence improved to a three-month high, presumably on hopes that China’s reopening will ensure activity doesn’t stay depressed for long.
Swissquote analyst Ipek Ozkardeskaya said: “The Aussie-dollar broke above the 70 cents level, as predicted, and consolidated above that level despite the weak PMI read this morning. The pair should continue its journey north on the back of a globally softer US dollar, and prospects of better Chinese demand that boost commodity prices, including iron ore – which matters for the Aussie.”
She also noted the ‘fun fact’ that the ECB “went from one of the most dovish central banks last year – except the Bank of Japan and the Turkish central bank – to one of the most hawkish central banks in just a year.
“If the euro weakened to below parity last year because of the dovish ECB divergence, the hawkish rectification in the ECB’s policy stance should help it to recover further.”