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

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

Ilya Spivak, Head Strategist, APAC

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
  • See Economic Releases Directly on Your Charts with the DailyFX News App

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

GMTCCYEVENTACTEXPPREV
22:30AUDANZ Roy Morgan Weekly Consumer Conf111.7-110.2
23:50JPYMonetary Base (YoY) (DEC)38.2%-36.7%
23:50JPYMonetary Base - End of Period (¥) (DEC)275.9T-262.7T
0:30AUDTrade Balance (A$) (NOV)-925M-1600M-877M
1:35JPYMarkit/JMMA Composite PMI (DEC)51.9-51.2
1:35JPYMarkit Japan Services PMI51.7-50.6
1:45CNYHSBC China Composite PMI51.4-51.1
1:45CNYHSBC China Services PMI53.4-53.0

European Session

GMTCCYEVENTEXPPREVIMPACT
8:45EURMarkit/ADACI Italy Services PMI (DEC)51.751.8Low
8:45EURMarkit/ADACI Italy Composite PMI (DEC)-51.2Low
8:50EURMarkit France Services PMI (DEC F)49.849.8Low
8:50EURMarkit France Composite PMI (DEC F)49.149.1Low
8:55EURMarkit Germany Services PMI (DEC F)51.451.4Medium
8:55EURMarkit/BME Germany Composite PMI (DEC F)51.451.4Medium
9:00EURMarkit Eurozone Composite PMI (DEC F)51.751.7Medium
9:00EURMarkit Eurozone Services PMI (DEC F)51.951.9Medium
9:30GBPMarkit/CIPS UK Services PMI (DEC F)58.558.6High
9:30GBPMarkit/CIPS UK Composite PMI (DEC)57.457.6High
9:30GBPOfficial Reserves (Changes) (DEC)--$321MLow

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.16491.17921.18621.19351.20051.20781.2221
GBPUSD1.49321.50931.51721.52541.53331.54151.5576

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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