Dollar ends higher on upbeat U.S. data, sterling sags due to renewed fear of hard Brexit

Market Review - 03/02/2020 23:42GMT  

Dollar ends higher on upbeat U.S. data, sterling sags due to renewed fear of hard Brexit

The greenback ended higher across the board on improved risk sentiment as China is willing to take additional measures to contain outbreak of the coronavirus together with upbeat U.S. ISM manufacturing PMI data. Sterling tumbled on renewed hard Brexit concern due to fear that a trade deal between EU and UK would not be reached by the end of the transition period after UK Prime Minister Boris Johnson set out tough terms.  
  
Reuters reported U.S. factory activity unexpectedly rebounded in January after contracting for five straight months amid a surge in new orders, offering hope that a prolonged slump in business investment has probably bottomed out.     The Institute for Supply Management (ISM) said on Monday its index of national factory activity increased to a reading of 50.9 last month, the highest level since July, from an upwardly revised 47.8 in December.   Economists polled by Reuters had forecast the index rising to 48.5 in January from the previously reported 47.2 in December.   
  
Versus the Japanese yen, although dollar initially fell to 108.32 in New Zealand, price found renewed buying and gained to 108.70 at European open on rebound in U.S. Treasury yields before retreating to 108.42. However, the pair then rallied to session highs at 108.79 in New York after upbeat U.S. ISM manufacturing PMI as well as selloff in eur/usd and gbp/usd and then moved broadly sideways.  
  
Despite initial rebound to 1.1095 in New Zealand, failure to penetrate Friday's 1.1096 high triggered profit-taking and the single currency retreated to 1.1081 in Asia and then dropped in tandem with sterling to 1.1059 in Europe and later hit session lows at 1.1037 in New York on usd's strength before recovering to 1.1066.  
  
The British pound met renewed selling at 1.3204 (Reuters) in New Zealand and dropped to 1.3157 in Asia, intra-day fall accelerated at European open and cable later tanked to session lows of 1.2984 in New York on renewed market concerns of a hard Brexit after UK Prime Minister Boris Johnson's tough Brexit comments.  
  
Reuters reported Britain can be the superman of free trade which protectionists are trying to choke but it will not seek to undermine the European Union with a race to the bottom, British Prime Minister Boris Johnson said on Monday.    A trade agreement between Britain and the European Union should provide a predictable, transparent and business-friendly environment for financial services firms and regulators, UK Prime Minister Boris Johnson said on Monday.   
"Given the depth of the relationship in this area, there should also be enhanced provision for regulatory and supervisory cooperation arrangements with the EU, and for the structured withdrawal of equivalence findings," Johnson said in a written statement.    
  
Banks, asset managers and insurers in London, Europe's biggest financial centre, will lose unfettered access to the EU once a transition period ends in December.    Future EU access will be based on Brussels deciding that UK financial rules are similar enough to those in the bloc. Banks have said the system is unpredictable and opaque.   
  
In other news, Reuters reported the European Union wants an ambitious and comprehensive future partnership with Britain, but will demand commitments to ensure open and fair competition, according to the EU's draft mandate for negotiations released on Monday.   The demand for a level playing field was the only section in bold of the 33-page document, which seeks zero tariffs and quotas.    The partnership should ensure the application of EU state aid rules to Britain, the document says, and uphold "high standards" on employment standards, climate change and "relevant tax matters".   
  
Data to be released on Tuesday :  
  
New Zealand building permits, GDT price index, Australia RBA interest rate decision, France budget balance, UK Markit construction PMI, Italy consumer price index, CPI (EU norm), EU producer prices, and U.S. redbook, ISM New York index, durables ex-defense, durable goods, factory orders, durables ex-transport.