Market Drivers April 3, 2018
Europe and Asia
GBP: UK PMI Manufacturing 55.1 vs. 55
North America:
USD: Economic Optimism 10:00
After taking a beating in yesterday’s equity market sell off, USD/JPY rebounded in early European dealing today, recapturing the 106.00 figure as the sell off in stocks appeared to stabilize.
The pair also saw a small boost from a bump in US yields as the 10 year rose above 2.75% in overnight trade.
Overall, however, the market mood remained cautious with FX traders cleary waiting to see if North American equity markets will see a rebound after yesterday’s decline.
In economic news the calendar was muted, with only RBA interest rate decision and UK PMI Manufacturing data on the docket. The RBA kept rates on hold for record 18th month in a row, noting that trade war concerns and softer prices for commodities required it to maintain monetary policy in neutral state. With most economists seeing no change in conditions for the foreseeable future, the consensus view is that the RBA may remain stationary for the rest of the year.
If that’s the case and if the Fed continues its gradual tightening policy, the Aussie is likely to drifty lower towards the .7500-.7400 corridor, as interest rate differentials will begin to weigh on the pair.
Meanwhile in UK, the PMI Manufacturing report printed at 55.1 vs. 54.7 eyed although the upside was dampened somewhat by downward revisions. Cable still managed to put in a decent performance, rising in early London trade through the 1.4050 level but stalling ahead of the 1.4100 barrier. This week’s UK PMI Services report will be a much bigger data point for the market and if it beats to the upside it could set the stage for a BoE hike in May.
In North America the calendar is barren today and flow will no doubt be dictated by the equity market performance. Risk FX remains vulnerable to further selloff in stocks and USD/JPY could easily revisit the 105.00 figure if equities turn lower again. Starting tomorrow the key economic data for the month will start to trickle on the calendar and traders will once again focus on macro issues, but for now the correction in equities is the primary factor in moving FX.