Dollar drops sharply vs yen due to risk aversion, euro tumbles on downbeat German PMI data

Market Review - 23/03/2019  04:20GMT  

Dollar drops sharply vs yen due to risk aversion, euro tumbles on downbeat German PMI data

The greenback ended mixed on Friday but dropped sharply vs yen due to safe-haven buying of the Japanese currency, falling U.S. Treasury yields and decline in U.S. stock market also weighed on the dollar. The single currency tumbled after release of much weaker-than-expected French and German manufacturing PMIs.   
  
Versus the Japanese yen, dollar initially retreated to 110.67 in Asian morning. Despite recovering to 110.84, price met renewed selling and intra-day fall accelerated in European morning and later tumbled to a 5-week low at 109.74 in New York due to sharp decline in U.S. Treasury yields as well as selloff in global equities with Dow dropping 460 points or down 1.77%.  
  
The single currency went through a volatile session. Although price rose from 1.1361 at Asian open to 1.1392 (Reuters) at European open, the pair met renewed selling and sharply fell to 1.1290 after release of downbeat French and German PMIs before recovering to 1.1319. Price later fell to a 9-day low of 1.1274 in New York on broad-based euro's weakness before recovering on short covering near the close.  
  
Data compiler IHS Markit said its French preliminary manufacturing purchasing managers index fell to 49.8 from 51.5 in February, falling short of economists' expectations for a reading of 51.5.  
  
Germany manufacturing PMI slumped to 44.7 from 47.6, while services PM inched down to 54.9 from 55.3.   
  
The British pound also went through a hectic session. Cable initially gained to 1.3157 in European morning and despite retreating in tandem with euro to 1.3081 in European morning, renewed broad-based buying in streling emerged and later pushed price to session highs at 1.3224 in New York on cross-buying in sterling as well as Brexit optimism after European Union agreed to give UK a short extension to Brexit deadline.  
  
The European Council agreed to an extension until 22 May 2019, provided the Withdrawal Agreement is approved by the House of Commons next week. If the Withdrawal Agreement is not approved by the House of Commons next week, the European Council approved to an extension until 12 April 2019 and expects the United Kingdom to indicate a way forward before this date for consideration by the European Council.  
  
In other Brexit news, Reuters reported nothing has changed as far as the Brexit divorce deal British Prime Minister Theresa May is seeking to convince lawmakers to back, the deputy leader of the Northern Irish party propping up her government said on Friday.   
  
The Democratic Unionist Party's Nigel Dodds said in a statement May had missed an opportunity to put forward proposals to EU leaders to improve the prospects of an acceptable deal, describing it as a "disappointing and inexcusable" failure.  
  
On the data front, U.S. home sales surged in February to their highest level in 11 months, a sign that a pause in interest rate hikes by the Federal Reserve was starting to boost the U.S. economy.  
  
The National Association of Realtors said on Friday existing home sales jumped 11.8 percent to a seasonally adjusted annual rate of 5.51 million units last month.  
  
That was the highest since March 2018 and well above analysts' expectations of a rate of 5.1 million units. The one-month percentage change was the largest since December 2015. January's sales pace was revised slightly lower.  
  
Data to be released this week :  
  
Japan all industry activity index, Germany Ifo business climate, Ifo current conditions, Ifo expectations, and U.S. Chicago national activity index, Dallas Fed manufacturing business index on Monday.  
  
New Zealand imports, trade balance, exports, Germany GfK consumer sentiment, France business climate, GDP, UK BBA mortgage approvals, and U.S. building permits, housing starts, redbook, monthly home price, CS home price, consumer confidence, Richmond Fed manufacturing index on Tuesday.  
  
New Zealand RBNZ interest rate decision, France consumer confidence, producer prices, Italy business confidence, consumer confidence, trade balance,Swiss investor sentiment, UK CBI distributive trades, U.S. MBA mortgage application, trade balance, current account, and Canada trade balance, exports, imports, average weekly earnings on Wednesday.  
  
New Zealand, NBNZ business outlook, NBNZ own activity, UK nationwide house price, EU business climate, economic sentiment, industrial sentiment, services sentiment, consumer confidence, U.S. GDP, PCE, initial jobless claims, pending home sales, KC Fed manufacturing index, and Germany CPI, HICP on Thursday.  
  
New Zealand building permits, Japan Tokyo CPI, unemployment rate, industrial output, retail sales, construction order, housing starts, UK GfK consumer confidence, GDP, current account, Germany import prices, retail sales, unemployment change, unemployment rate, France consumer spending, CPI, Swiss KOF indicator, Italy consumer prices, producer prices, U.S. building permits, personal income, personal spending, PCE, Chicago PMI, University of Michigan sentiment, new home sales, and Canada GDP, producer prices on Friday.