Although the greenback initially traded higher against majority of its peers on Monday as a selloff in global stocks and U.S. Treasury yields triggered broad-based risk aversion. However, dollar then pared its gains and retreated on return of risk sentiment with a strong recovery in U.S. stocks.
Reuters reported U.S. business activity grew at its slowest pace in 18 months in January as a winter surge in COVID-19 infections worsened worker shortages at factories, though demand remained strong. The IHS Markit survey's flash services sector PMI dropped to a reading of 50.9, also the lowest since July 2020, from 57.6 in December. Economists polled by Reuters had forecast a reading of 55.0 this month for the services sector, which accounts for more than two-thirds of U.S. economic activity. Worsening supply chain problems because of Omicron restrained manufacturing activity this month. The survey's flash manufacturing PMI fell to a 15-month low of 55.0 from 57.7 in December. Economists had forecast the index for the sector, which accounts for 11.9% of the economy, dipping to 56.7.
Versus the Japanese yen, despite edging up to 113.97 in Asian morning, dollar met renewed selling there and fell in tandem with U.S. yields together with cross-buying in jpy to an intra-day low at 113.48 in European morning. However, the pair then erased its losses and rose to session highs of 113.99 in tandem with U.S. yields and recovery in U.S. stocks.
The single currency remained under pressure in Asia and fell to 1.1311 in early European morning. Despite a brief but strong rebound to 1.1336 in Europe, the pair then tumbled to an intra-day low at 1.1291 in New York morning on broad-based risk aversion before staging a strong short-covering rebound to 1.1334 on return of risk sentiment.
More from Reuters, on euro zone economic recovery weakened further this month as renewed restrictions imposed to contain the Omicron coronavirus variant put another dent in bloc's dominant services activity and as prices continued to soar, a survey showed on Monday. That headline number was affected by the services PMI, which dropped to a nine-month low of 51.2 from 53.1. Although above the 50-mark separating growth from contraction it was well below the Reuters poll estimate for 52.2. Factories, however, are less affected by restrictions and have largely remained open. The manufacturing PMI rose to a five-month high of 59.0 from 58.0, well ahead of the 57.5 Reuters poll estimate.
The British pound met renewed selling at 1.3565 in Asian morning and intra-day decline accelerated in Europe on risk-averse usd buying together with active cross-selling of sterling and fell to an intra-day low at 1.3441 in New York afternoon due partly to renewed Brexit concerns. Price later staged a short-covering bounce to 1.3492 near the close on broad-based retreat in usd.
Further from Reuters, British foreign minister Liz Truss said on Monday that progress needed to be made in "short order" with the European Union to solve post-Brexit Northern Irish trading challenges. "I'm absolutely determined to protect political stability and peace in Northern Ireland," Truss said.
Data to be released on Tuesday:
New Zealand business NZ PSI, Australia NAB business conditions, NAB business confidence, CPI, Germany Ifo business climate, Ifo current conditions, Ifo expectations, U.K. PSNB, PSNCR, CBI trends orders, U.S. redbook, monthly home price, consumer confidence and Richmond Fed manufacturing.
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