FX news and analysis 22nd Mar

USD

The dollar rose on Thursday after worse-than-expected data led to a fall in global risk appetite. Euro-zone and Chinese PMI both came in below expectations, with the former showing a print which was 9bps lower – for Composite PMI - and the later falling to 48.1 from 49.7 in the previous month of February (the data was for March). This increased already existing concerns about a global slowdown – particularly in China, although growth is also the new 'issue' in the euro-zone now that the immediate threat of default in Greece has been dealt with. The dollar fell back a little after the release of more strong employment figures from the U.S, with Initial Jobless Claims 2k below the 350k estimate for the week ending 17th March and Continuing Claims at 3352k vs the 3380k expected. Not all data was positive, however, with the House Price Index (Jan) MoM at 0.0% when a 0.3% rise had been expected, although Leading Indicators in February rose by 0.7% when 0.6% had been expected and 0.2% was the previous result.

EUR

The euro fell on Thursday after data showed that euro-zone PMI fell compared to the previous month and was lower than analysts' expectations. Euro-zone Composite PMI came out at 48.7 versus 49.6 expected and 49.3 previous. Results under 50 infer contraction whilst over 50 reveal expansion. Manufacturing PMI fell to 47.7 from 49 and Services to 48.7 from 49.2 – both below consensus estimates. Individual nation PMIs also dropped in France and Germany with Manufacturing and Services at 50.0 and 47.6, and 48.1 and 51.8, respectively – and all also below estimates. The figures stocked fresh growth concerns as many peripheral nations struggle with recessions. Meanwhile other data was also negative with Industrial New Orders (Jan) YoY falling by -3.3% versus -3.1% expected and -0.4% previous and the MoM stat also falling by -2.3% when -2.2% had been expected. Euro-zone Consumer Confidence actually did better than was expected, however, showing a -19 print when -19.8 had been forecast and -20.3 previous.

GBP

The pound fell quite heavily today after a rise in global risk aversion led to a sell-off in riskier currencies against their safer counterparts. Recent data had not been brilliant for sterling, with yesterday's public sector borrowing coming out higher than expected - even despite the government's efforts to cut back – and a particularly doveish BOE minutes for March, with 2 of the board voting for an increase in asset purchases of 25bn. The Budget was another non-event as it was full of compromises for political purposes and contained little that was now from a macro perspective. Today revealed even more negative data with Retail Sales showing a slower 1.0% rate of growth compared to 1.1% previously and the 2.3% expected by analysts; the data was not really very different with fuel and cars included – 1.0%, 2.4% and 1.4% previously. Month-on-month the data fell by -0.8% when a more muted -0.5% had been estimated. This may raise fears of a slowdown which will put a squeeze on tax revenues. I would expect to see continued in weakness in the pound therefore, and unlikely to reach the 1.60 regions where its generally only seen in the company of stronger fundamentals than it is currently associated with.

JPY

The yen rose strongly on Thursday after much better-than-expected trade figures showed a surplus in the balance of trade dispelling fears of long-term weakness in Japan's export orientated economy which could possibly lead to debt re-financing problems in the future and more quantitative easing. The Merchandise Trade Balance for February rose to 32.9bn when a -120bn yen deficit had been expected and the previous month had shown an unexpectedly weak -1476.9bn print. The statistic measures the difference between goods exported and imports. Recently the surplus enjoyed by Japan for so long had dwindled as a result of the global economic slowdown and Japan's increased reliance on imported fuel after the decimation of its nuclear industry, however, today's print was far better than expected and may have increased optimism for the future. Japan still has many powerful corporations and very diversified markets, which means it can offset loses in one region such as Europe with gains in BRICS countries or the U.S, which tends to keep its exports strong and it will be interesting to see how far the current correction goes and whether weakness reasserts itself longer term or not.