After a one day correction dollar bulls got their groove back as data from EZ and UK continued to show further weakness,
â€¢ Japanese Yen: hovers near 103,00 large option activity reputed
â€¢ Euro: Drops below 1.5600 as EZ slip badly
â€¢ Pound: PMI Services declines as credit concerns mount
â€¢ US Dollar: ISM Services on tap
After a one day correction dollar bulls got their groove back as data from EZ and UK continued to show further weakness, indicating that monetary policy officials in Frankfurt and London will have to consider easing in the very near future. The EURUSD was dragged down by another bad print in retail sales which posted a reading of â€“0.5% vs. 0.2% expected. The massive decline in German retail sales earlier in the week weighed on the overall number.
Meanwhile, in UK the PMI Services report printed at 52.1 versus 53.3 forecast and far lower than the 54 reading in February. While still above the 50 boom/bust level, the sharp deceleration in UK PMI Services data bodes poorly for future UK demand. Indeed a report on credit conditions in UK today, indicated that lenders have tightened their criteria and borrowers who rely in unsecured credit will have a progressively more difficult time expanding their borrowings in the future.
All in all conditions in UK suggest that the BoE will have no choice but lower rates to 5.00% at next weekâ€™s MPC meeting. BoE Governor Mervyn King has been criticized by some market observers for being too slow to ease given the slowdown in global demand. With UK data now corroborating pound bearâ€™s arguments it will be surprising to see if UK monetary officials continue to focus on controlling price pressures rather than stimulating growth.
In US today, the markets will get a glance ISM Services and weekly jobless claims, as unemployment will take center stage for the next 24 hours. Yesterdayâ€™s surprisingly strong ADP report provided a short term boost for the greenback, but as weâ€™ve noted many times before the ADP number has been woefully wrong to the upside and markets chose to give it little credence in the end. Today employment component of ISM will be taken more seriously and should the data show an uptick over even only a slight decline, the dollar rebound could continue into the North American session.
To discuss this article please contact Boris Schlossberg, Senior Curency Strategist: [email protected]