Dollar drops broadly as downbeat U.S. services PMI triggers long liquidation

Market Review - 22/02/2020  03:27GMT  

Dollar drops broadly as downbeat U.S. services PMI triggers long liquidation

The greenback snapped its recent winning streak and ended lower across the board on Friday due to selloff in the dollar in New York session after release of downbeat U.S. services PMI data, where the services sector dropped below the 50 mark, suggesting contraction in the economy.  
  
Reuters reported U.S. business activity in both the manufacturing and services sectors stalled in February as companies have grown increasingly concerned about the coronavirus, a survey of purchasing managers showed Friday.    The IHS Markit flash services sector Purchasing Managers' Index dropped to 49.4 this month, the lowest since October 2013 and signaling that a sector accounting for roughly two-thirds of the U.S. economy was in contraction for the first time since 2016.    Economists polled by Reuters had forecast a reading of 53, down slightly from January's final reading of 53.4. A reading below 50 indicates contraction.   
  
Versus the Japanese yen, dollar went through a roller-coaster ride. Although price met renewed selling at 112.18 at Asian open and briefly fell to 111.49 in European morning on falling U.S. Treasury yields as well as profit-taking from its recent gains, the pair quickly pared its losses and rebounded to 112.03 ahead of New York open on cross-selling in jpy but only to fall to session lows at 111.48 in New York on downbeat U.S. PMI data.  
  
The single currency founded renewed buying at 1.0785 and price jumped to 1.0820 in European morning on upbeat French services PMI and German manufacturing PMI. Despite retreating to 1.0796 on cross-selling in euro, especially versus sterling, the pair later rallied to a 1-week high at 1.0863 in New York on broad-based usd's weakness before easing.    
  
Reuters reported Germany's private sector expanded steadily in February as growth in services activity slowed but still made up for an easing recession in manufacturing, a business survey showed on Friday, although the coronavirus outbreak may pose a threat to future exports.   A sub-index tracking the manufacturing sector improved to 47.8 from 45.3 the previous month. The February reading was the highest since January 2019. Analysts had expected a drop.   
  
The British pound remained on the front foot in Asia and gained to 1.2898 and despite retreating to 1.2885 in European morning, the pair rose to 1.2927 due to upbeat UK manufacturing PMI. Cable then ratcheted higher to 1.2952 (Reuters), and later hit session highs of 1.2980 in New York afternoon on usd's weakness after release of downbeat U.S. PMI data, price last traded at 1.2959 near the close.  
  
Reuters reported British businesses kept up a solid rate of growth in February as factories posted the fastest rise in output for 10 months, despite ripples from China's coronavirus outbreak affecting supply chains, a business survey showed on Friday.     The 'flash' early readings of the IHS Markit/CIPS UK Purchasing Managers' Index (PMI) showed the expansion of Britain's vast services sector slowed slightly this month, but this was cancelled out by an unexpected upturn in manufacturing.     

The manufacturing PMI rose to 51.9 in January from 50.0, its highest level since April and above all forecasts in a Reuters poll, although there were signs that the coronavirus outbreak might have an impact on production in Britain.    The services PMI, which covers the bulk of British economic output, fell in February to 53.3 from 53.9, close to the Reuters poll forecast for a reading of 53.4.   
  
In other news, Reuters reported given low interest rates and low inflation that's less sensitive than in the past to changes in the labor market, the Federal Reserve will need to act proactively and aggressively to counter future downturns, Governor Lael Brainard said on Friday.    Brainard's call for strong action in response to a future shock were made in response to a research paper released Friday at the conference that argued that the unconventional monetary policies deployed during the last crisis had mixed results and could have been more effective had they been used more decisively.     Brainard said she supports adopting a strategy where the Fed would target a range of inflation outcomes that would allow it to achieve 2% on average overall, a strategy she calls flexible average inflation targeting.    And she also called, as have other Fed officials, for stronger fiscal responses in a downturn, since monetary policy alone will likely not be enough.   
  
On the data front, Reuters reported euro zone inflation grew an annual 1.4% in January, picking up from the previous month as energy prices surged, the European Union statistics office said on Friday, confirming its earlier estimates.     Prices in the 19-country region rose 1.4% in January year-on-year, for their third consecutive monthly acceleration, in line with market expectations. In December, headline inflation was at 1.3%.     
Core inflation slowed to 1.3% in January from 1.4% in December, Eurostat said confirming its previous estimates released on January 31.    The statistics office also left unchanged at 1.1% its estimate for a narrower measure of core inflation, which strips out energy, food, alcohol and tobacco, confirming the indicator slowed from 1.3% in December.     Month-on-month, the euro zone recorded a 1.0% deflation, Eurostat said.   
  
Data to be released this week :  
  
New Zealand retail sales ex-autos, retail sales, Australia capital expenditure, China industrial production, retail sales, Germany Ifo business climate, Ifo current assessment, Ifo expectations, UK BBA mortgage approvals, U.S. national activity index, Dallas Fed manufacturing index and Canada wholesale trade on Monday.  
  
Japan coincident index, leading indicator, Germany GDP, Swiss non-form payrolls, France business climate, UK CBI distributive trades and U.S. redbook, monthly home price, CS home price, consumer confidence, Richmond Fed manufacturing, Richmond Fed services on Tuesday.  
  
Australia construction work done, France consumer confidence, Italy trade balance and U.S. MBA mortgage application, building permits, new home sales on Wednesday.  
  
New Zealand imports, trade balance, exports, NBNZ business outlook, NBNZ own activity, UK nationwide home price, Italy manufacturing business confidence, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence, U.S. durable goods, durables ex-transport, durable ex-defense, GDP 2nd estimate, GDP sales, core PCE prices, PCE prices, initial jobless claims, pending home index, pending sales change, KC Fed manufacturing and Canada current account, average weekly earning on Thursday.  
  
Japan core Tokyo CPI, Tokyo CPI, unemployment, industrial output, retail sales, housing starts, construction orders, annualized housing starts, UK GfK consumer confidence, BRC shop prices, Germany import prices, CPI, unemployment change, unemployment rate, HICP, Swiss retail sales, KOF indicator, France GDP, consumer spending, CPI (EU norm), producer prices, Italy consumer prices, CPI (EU norm), CPI, U.S. personal income, personal spending, core PCE price, PCE price, trade balance, Chicago PMI, U Mich sentiment, Dallas Fed PCE and Canada GDP, GDP annualized, production prices, budget balance on Friday.