There was a Nikkei index decline on Monday and a weaker reading for China’s PMI services-sector index which tended to subdue risk appetite during the Tokyo session. This prevented the dollar sustaining any upward progress against the Japanese currency with USD/JPY blocked below 102.50.
Sterling was a big mover during the European session on Monday. Initial vulnerability and a slide through 1.64 for GBP/USD was initially countered by solid buying support, but the currency was then undermined by a weaker than expected PMI manufacturing reading of 56.7 from a revised 57.2 previously. Although still solid in historic terms, the data maintained concerns that growth has already peaked and reinforced the fact that recent data has under-performed expectations.
Sterling initially fell sharply with GBP/USD moving below 1.6350. Selling pressure was compounded by strong Euro buying into the morning London fix which pushed EUR/GBP to a peak near 0.8280.
The latest CFTC speculative positioning data recorded a decline in dollar longs to a two-month low and a fresh move to net Euro longs which will make it more difficult for the Euro to make fresh progress over the next few days.
Euro-zone PMI manufacturing data was marginally stronger than expected as Spain and Italy managed to stay above the 50 level and there was also a positive Greek reading for the first time in over four years. The Euro was unable to make any headway, undermined by persistent talk of fresh ECB action on interest rates and by reports of secret talks on a third Greek bailout.
EURUSD dipped to re-test 2014 lows around 1.3480 seen on Friday, but managed to resist further losses and consolidated around the 1.35 level into the New York open.
The latest US ISM manufacturing data was sharply weaker than expected at 51.3 for January from 56.5 previously and this was the lowest reading since June. Orders and employment growth declined sharply, although there was an increase in the prices index.
The data undermined immediate confidence in the US outlook which undermined the dollar. There was also a significant impact on risk appetite with fears that a weaker US reading was a harbinger of weaker global demand which undermined sentiment.
The yen gained support on both yield and defensive grounds as USD/JPY dipped below the 101.50 level for the first time in over two months and EUR/JPY dipped below the 137 level following the US data. EUR/USD secured a small temporary boost with defensive support mainly channelled into the Swiss franc as EUR/CHF dropped through 1.22.