US Dollar at Risk of Deeper Losses if Soft ISM Undermines Fed Outlook

2015-01-06 07:34:00

Talking Points:

US Dollar May See Deeper Losses as Soft ISM Data Weighs on Fed Outlook
British Pound May Stabilize as PMI Figures Arrest Slide in BOE Expectations
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The US Dollar broadly declined in overnight trade, falling as much as 0.4 percent on average against its leading counterparts. The move appeared to reflect continued response to dovish comments from San Francisco Fed President John Williams, who will rotate into a voting position on the rate-setting FOMC committee this year. Williams said there is “no reason whatsoever to rush tightening”, adding the economy still needs policy accommodation and hinting the first post-QE rate hike may appear late in 2015.

Policy-sensitive currencies at both ends of the rate spectrum outperformed, with the Yen as well as the Australian and New Zealand Dollars leading the way against the greenback. The Japanese unit appeared to find additional support from risk appetite trends as Asian shares followed Wall Street lower, spurring liquidation of carry trades funded via the perennial low-yielder. The MSCI Asia Pacific regional benchmark equity index slid 1.7 percent.

More of the same may be ahead as the spotlight turns to the US Non-Manufacturing ISM figure. Service-sector growth is expected to have slowed in December having hit a three-month high in November. US economic news-flow has deteriorated relative to consensus forecasts recently, opening the door for a downside surprise. Such an outcome may further cool Fed rate hike bets, adding to downward pressure on the buck.

December’s UK PMI figures headline the calendar in European hours. The Composite index is due to show the pace of manufacturing and services sector growth narrowly slowed last month. A string of upbeat data outcomes over the past three weeks suggests analysts may have underestimated the economy’s vigor, hinting an upside surprise could be in the cards. An upbeat print may help arrest the slide in BOE rate hike bets and stabilize the British Pound after the currency tumbled to a 17-month low.

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Asia Session

GMT	CCY	EVENT	ACT	EXP	PREV
22:30	AUD	ANZ Roy Morgan Weekly Consumer Conf	111.7	-	110.2
23:50	JPY	Monetary Base (YoY) (DEC)	38.2%	-	36.7%
23:50	JPY	Monetary Base - End of Period (¥) (DEC)	275.9T	-	262.7T
0:30	AUD	Trade Balance (A$) (NOV)	-925M	-1600M	-877M
1:35	JPY	Markit/JMMA Composite PMI (DEC)	51.9	-	51.2
1:35	JPY	Markit Japan Services PMI	51.7	-	50.6
1:45	CNY	HSBC China Composite PMI	51.4	-	51.1
1:45	CNY	HSBC China Services PMI	53.4	-	53.0

European Session

GMT	CCY	EVENT	EXP	PREV	IMPACT
8:45	EUR	Markit/ADACI Italy Services PMI (DEC)	51.7	51.8	Low
8:45	EUR	Markit/ADACI Italy Composite PMI (DEC)	-	51.2	Low
8:50	EUR	Markit France Services PMI (DEC F)	49.8	49.8	Low
8:50	EUR	Markit France Composite PMI (DEC F)	49.1	49.1	Low
8:55	EUR	Markit Germany Services PMI (DEC F)	51.4	51.4	Medium
8:55	EUR	Markit/BME Germany Composite PMI (DEC F)	51.4	51.4	Medium
9:00	EUR	Markit Eurozone Composite PMI (DEC F)	51.7	51.7	Medium
9:00	EUR	Markit Eurozone Services PMI (DEC F)	51.9	51.9	Medium
9:30	GBP	Markit/CIPS UK Services PMI (DEC F)	58.5	58.6	High
9:30	GBP	Markit/CIPS UK Composite PMI (DEC)	57.4	57.6	High
9:30	GBP	Official Reserves (Changes) (DEC)	-	-$321M	Low