By Geoffrey Smith
Investing.com -- The dollar was little changed against European currencies in early trading in Europe Monday, but fell to its lowest in 15 months against the Chinese yuan after a stronger-than-expected reading from a key Chinese business survey.
The offshore yuan, which trades more freely than the official rate on the mainland, rose as high as 6.8443 in Asian trading after the country’s official purchasing managers index rose to 54.5 in August from 54.1 in July. In a break with the prevailing pattern since the pandemic erupted, services performed more strongly than manufacturing, bolstering hopes that private consumption is finally recovering.
By contrast, the manufacturing PMI fell a little to 51.1.
Iris Pang, chief economist for Greater China with ING, said in a research note that the figures showed China relying increasingly on domestic factors to drive growth, something made possible by its greater success in keeping the coronavirus under control.
Data from regional business surveys in the U.S. suggested, by contrast, that the recovery is reaching a short-term peak, with the main indexes in surveys for New York, Chicago and Philadelphia all falling last week. That puts the Institute for Supply Management’s national manufacturing index, due to be announced on Tuesday, on course for a modest decline, according to Ian Shepherdson of Pantheon Macroeconomics.
Trading in Europe is set to be subdued on Monday by the U.K. public holiday, but both the euro and sterling remain well bid against the dollar in the wake of Federal Reserve Chairman Jerome Powell’s speech to the Jackson Hole symposium on Thursday, in which he announced a shift to what looks like an easier monetary policy for the foreseeable future.
Powell’s speech overshadowed one by the European Central Bank’s chief economist Philip Lane, who argued that the effect of monetary policy so far during the pandemic had been insufficient.
Deutsche Bank strategist Ulrich Stephan noted that the ECB is likely to increase its bond-buying program further in the face of sub-target inflation, adding that this is all the more likely given the risk that the EU parliament may not approve the proposed European Recovery Fund on Sept. 18.
The euro was flat at $1.1905 at 3 AM ET (0700 GMT), supported by a report from Goldman Sachs saying that $1.25 is possible within 12 months. Sterling was unchanged at $1.3335, having tested a new high for 2020 over the weekend in response to a report that the government is planning a series of tax increases to plug a budget deficit that has exploded due to cover the cost of Covid-19-driven lockdowns.