The last trading day of January saw the dollar in the ascendency, the dollar index just short of the highs for the year. Against the single currency, the dollar was at a 2-month high, with EURUSD having broken below key trend line support. This sets up the euro on a weaker footing going into the ECB meeting later this week. Further policy announcements are not likely at this stage, but the euro could still be weakened by talk about what could be next. For the dollar though, the focus is clearly on payrolls at the end of the week and the extent of the rebound we see from the weakness seen in the December numbers.
It’s likely that emerging markets will remain in focus this week. The weekend saw a further modest fall in manufacturing PMI data for China (from 51.0 to 50.5), which was in line with expectations but still indicative of a slower pace of activity going forward. The yen has continued to perform well off the back of this, with the further correction in the Nikkei overnight also supporting a stronger Japanese currency. Once again, the yen bears have been put back into their cage by events beyond Japan’s borders, with USDJPY close to the 102 level once again and EURJPY having pushed below the 140 level on a more sustained basis towards the end of last week. So far, emerging currencies have seen some stability, but it’s going to be a strain to see a re-emergence of strength here, given the headwinds of higher inflation and capital outflow that many are currently battling.
Further reading:
ECB Preview: 5 scenarios – negative deposit rate now, or later?
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