Dollar retreats broadly on soft U.S. data: Feb 2, 2016

Market Review - 01/02/2016 22:43GMT 
 
Dollar retreats broadly on soft U.S. data

The greenback weakened further versus the other major currencies on Monday, after release of a slew of downbeat U.S. economic reports as concerns over global economic growth persisted.

Versus the Japanese yen, U.S. dollar came under renewed selling pressure after a brief rise to 121.49 in Asian morning and price later fell to 121.05 in Europe, then 120.68 in New York after due to release of a slew of downbeat U.S. economic reports before recovering.

U.S. official data showed that Personal Income rose to a seasonally adjusted 0.3%, from 0.3% in the preceding month and more than expectation of a rise of 0.2%. Meanwhile, data also showed that U.S. personal spending was flat last month, missing forecasts for a gain of 0.1%. Personal spending for November was revised up to 0.5% from a previously reported rise of 0.3%. Separately, the core PCE price index was flat in U.S. last month, below expectations for a gain of 0.1% and after rising 0.2% in November. The core PCE price index rose at an annualized rate of 1.4%, matching estimates and unchanged from a month earlier.

Later, the U.S.'s Institute for Supply Management said its index of purchasing managers inched up to 48.2 last month from a reading of 48.0 in December. Analysts had expected the manufacturing PMI to rise to 48.1 in January.

The single currency rebounded after a brief retreat to 1.0815 ahead of Asian open and rose to 1.0860 in European morning. Later, broad-based weakness in the greenback pushed price higher to 1.0913 in New York morning before retreating.

Cable edged higher after meeting renewed buying at 1.4229 ahead of Asian open and then rose 1.4322 after the release of upbeat U.K. Markit/CIPS manufacturing PMI, however, cross-selling in sterling swiftly knocked price down to 1.4243 before renewed buying interest emerged and pushed price higher to 1.4279 in New York morning, then 1.4387 later.

A report from market research group Markit showed on Monday that Manufacturing activity in the U.K. expanded at the fastest rate in three months in January, due mostly to improved domestic demand. Markit said that its U.K. manufacturing PMI rose to a seasonally adjusted 52.9 last month from a reading of 52.1 in December. Market had expected the index to inch down to 51.8 in January.

In other news, ECB's President Mario Draghi said on Monday, 'cyclical recovery in the euro area should also be supported by effective structural policies; fiscal policies should contribute to the economic recovery; we need a common public backstop for the single resolution fund to strengthen its credibility; growth prospects are slowly improving in advanced economies, but the outlook in emerging markets is more subdued; the ECB is willing to contribute its share to ensuring that the recovery remains firmly on track; there are risks that – if they were to materialise – could undermine its course; inflation dynamics are also tangibly weaker than we expected in December; without monetary policy measures the euro area would have been in outright deflation last year; growth prospects slowly improving in advanced economies, but outlook in emerging markets is more subdued; emerging markets remain vulnerable to an abrupt shift in risk sentiment that could tighten financing conditions.' Later, he added ' we have to do more to make sure SME credit conditions further improve; stand ready to review, reconsider monetary policy stance in early march; price stability is prerequisite for financial stability; monetary policy measures may have unintended side effects on financial system; ECB may not be part of Troika forever; right time for change in set-up must be carefully considered; recovery cannot continue to rely on monetary policy only; want to make changes to high denomination bank notes.'

Another piece of news worth mentioning, Fed Vice Chairman Stanley Fischer said, 'recent market volatility could signal slowing global economy that affects U.S.; oil, dollar moves through December-January suggested inflation could remain lower than thought; "difficult to judge implications" of market volatility; notes past volatile periods have not permanently hit U.S. economy; cites benefits to maintaining "larger balance sheet for a time" to support economy; modest drop in unemployment below target would be appropriate, help boost inflation; Fed should avoid "large overshoot" in employment; China, commodity weakness triggered market volatility; monetary policy remains accommodative despite "small" rate hike.' He then added, adds, '"wait to see" whether market volatility will hit U.S. economy; U.S. manufacturing growth has declined; Fed watching; very close to employment goal; 1.4 percent core PCE inflation not in "different universe" from goal; oil could continue to decline but will stop at some point; needs to see whether financial instability reflects "something real," or "animal spirits"; sees remarkably strong U.S. labor market; four rate hikes in 2016 "among the numbers being talked about" but not predetermined; asked about pushing U.S. unemployment too low, says "you don't want to go to far".'

Earlier, data from China Logistics Information Center showed manufacturing activity in China fell more-than-expected last month. The report said Chinese Manufacturing PMI fell to an annual rate of 49.4 in January, from 49.7 in the preceding month. Market had expected Chinese Manufacturing PMI to fall to 49.6 last month.

Data to be released on Tuesday:

Australia interest rate decision, Swiss retail sales, Germany unemployment rate, unemployment change, Italy unemployment rate, Euro zone unemployment rate, producer price index, U.S. Redbook and ISM New York index.