We are entering the last week of the current quarter, which has turned out to be one of mixed fortunes for FX. The general thinking was that tapering from the US Fed would see the dollar continue to gain at the expense of other currencies, especially the euro given the potential for further ECB easing. The dollar story has not panned out as expected, currently almost exactly at the same point at which it started the quarter on the dollar index. Of course, some of this could have been down to the soft patch in data caused by the bad weather in the US over this time, but that’s not the whole story, as the downward revisions to Q4 growth illustrates. We’ve also seen the euro surprise on the upside once again, together with sterling performing better than generally expected.
For this week, the focus is initially on PMI data. HSBC manufacturing data for China seen earlier today showed a further decline to 48.1 (expected 48.1), which knocked some of the wind out of the Aussie initially, but AUDUSD has since recovered to near the 0.9100 level. In Europe, the single currency has received a lift from the initial preliminary readings from France, which moved back above the 50.0 level to 51.9 on the manufacturing series. This is the third consecutive monthly increase and also the third that has beaten expectations, suggesting that France is down, but not out. The focus stays with Europe tomorrow, with the release of the German IFO data and UK inflation data, which is seen moving further below target.