The Euro may bounce on an upbeat set of PMI figures but follow-through seems unlikely. The US Dollar is vulnerable if a soft CPI print undercuts Fed rate hike bets.
Talking Points:
Euro Gains on Pickup in PMI Readings Unlikely to Yield Follow-Through
US Dollar Vulnerable if Soft CPI Print Undercuts Fed Rate Hike Outlook
Yen Drops Alongside Japanese Yields, Aussie Down on Weak China PMI
The preliminary set of November’s Eurozone PMI figures headlines the economic calendar in European trading hours. The region-wide composite gauge is forecast to show manufacturing- and service-sector activity growth narrowly accelerated for a second consecutive month. An upbeat result may offer a short-lived boost to the Euro but follow-through seems unlikely considering the inability of such outcomes to meaningfully alter the ECB’s decidedly dovish posture.
Later in the day, the spotlight turns to October’s US CPI report. The benchmark year-on-year inflation rate is seen edging lower to 1.6 percent, the lowest in seven months. Investors may interpret a weak result as suggesting that the Fed will be relatively slow to issue its first post-QE interest rate hike, punishing the US Dollar.
The Japanese Yen underperformed in overnight trade, sliding as much as 0.6 percent on average against its leading counterparts. The move tracked a drop in Japan’s benchmark 10-year bond yield, hinting the selloff reflected bets on increasingly accommodative monetary policy after GDP figures released earlier in the week showed the world’s third-largest economy has sunk back into recession.
The Australian Dollar likewise faced selling pressure after the HSBC Chinese Manufacturing PMI gauge proved disappointing, showing factory-sector activity unexpectedly stalled in November. The East Asian giant is Australia’s top export market, meaning a slowdown there translates into an ebbing outlook for cross-border sales that bears down on overall economic growth and RBA monetary policy projections.
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