Dollar Falls On Poor Data And Fiscal Fears

The dollar fell on Monday after poor data and a stalemate between lawmakers in Washington stoked fiscal-cliff fears. Data showed ISM Manufacturing (Nov.) fell much more than expected to 49.5 from 51.7 when a less extreme fall to 51.4 had been expected. Construction Spending, however, rose to 1.4% from 0.5% when it had been expected to remain the same. On fiscal concerns House Speaker Boehner said: “We're nowhere, period.”

There may also have been further weakness from comments made by Fed's Rosengren in which he said that there was still a “strong case” for more money-printing. Fed's Bullard did not support more QE but did so for the adoption of threshold setting. In such a system the Fed would only change policy if certain metrics such as unemployment or Interest rates fell below certain levels -- such as 6.5% and 2.5% respectively for example.

EUR
The euro rose on Monday after data came out more-or-less as analysts had estimated while confidence continued to be high following the recent announcement of a bailout deal for Greece. Details of the bond-buyback part of the deal were released today, in which private owners of Greek debt will be encouraged to sell their holdings back to the Greek government despite this leading to them taking a loss.

On the data front Euro-zone Manufacturing PMI remained at 46.2 as expected. German PMI also remained the same at 46.8 but French PMI fell to 44.5 from 44.7; and Italian PMI (Nov) fell to 45.1 from 45.5 when it had been expected to rise to 46.0. The Italian Budget Balance fell to -4.3bn from -13.1bn, however YTD the balance fell to -62.9bn versus -58.5bn; finally New Car Registrations fell by -20.10% versus -12.39% previously.

GBP
The pound rose against most other currencies on Monday after Manufacturing PMI data (Nov) showed a rise in the U.K to 49.1 from 47.3. This was unexpected and compared favourably to U.S data which showed a fall in ISM Manufacturing and euro-zone manufacturing data showed no contraction -- but no growth either. Risk appetite was overall a bit up after Chinese data showed a small rise and supported the possibility that the economy might be experiencing a 'soft' rather than a 'hard' landing.

As far as the outlook for sterling over the rest of the week, tomorrow sees the release of Construction PMI (Nov,), which is expected to drop to 50.5 from 50.9, and if it too rises then that could further support sterling. Then on Wednesday we have Services PMI which is expected to show a slight rise.

JPY
The yen traded mixed on Monday. It rose versus the dollar but fell to the pound and the euro as better-than-expected Manufacturing data helped enhance the outlook for the European region. BoJ Governor Maasaki Shirakawa gave a speech in Tokyo at an economic forum, at which BOF Governor Christain Noyer was also present. The consensus seemed to be that more easing would not necessarily lead to out-of-control inflation, as feared, but as Noyer pointed out could probably support much-needed growth. Shirakawa appeared to back these comments by saying that central banks should not always make policy decisions with investors in mind but should be willing to stand up to the market from time to time. Other news showed that Vehicle Sales, in November y/y fell by a comparatively muted -3.3% from -9.0% previously.