EUR/USD has struck a 7-week low in the run up to purchasing manager surveys (PMIs) that likely show Europe’s economic bounce has plateued.
Stock markets are in the green again but there is not much vigour to the move outside of technology stocks, which were heavily oversold.
The Dow Jones ended higher Tuesday as gains in technology helped the broader market shake off weakness from financials and worries over a second wave of Covid-19.
Amazon led the gains after an upgrade by Bernstein. European stocks, silver, oil, the dollar and bonds were bid. This morning, Asian stocks are struggling to build on Wall Street gains.
European markets have made a positive start on Wednesday, with a small lift coming from weaker currencies in the lead up to the release of PMI data.
The US dollar has been rallying into the first set of September PMIs – with EUR/USD probing 7-week lows. Not necessarily on the US economic outperformance that the PMIs will show – but more on the general understanding that there is a plateauing of the economic recovery. The US is behind Europe in its economic and virus trajectory – so will probably catch down. But, there is also a bit a trade unwind going on here – a trade that bought euros on the belief Europe was fighting the virus better – and with the help of the recovery fund – could bounce back economically quicker.
Specifically on this set of data, for most of Europe and the US there is little change expected from the final August readings – the one exception appears to be the UK where some deceleration is expected – which maybe a bit overblown if economists think there will be some Brexit uncertainty factor – but the ‘rule of 6’ may well have damped business confidence.
The RBNZ left policy unchanged today. The large scale asset purchase programme or LSAP was expanded last time around so they don’t need to do more for now. The kiwi fell to a new low for the month as Governor Orr made no explicit mention of the kiwi dollar strength but minutes did highlight the consideration of negative rates and foreign asset purchases.
Fed Chair Jerome Powell will of course be testifying again but will likely be a repeat of his message that things are improving with a very uncertain outlook and that the Fed thinks the Fed schemes have worked well for the economy.