The latest Chinese economic data was weaker than expected as the HSBC flash PMI index weakened to an 11-month low of 47.7 from 48.2 previously and contrary to expectations of a small improvement. The data increased unease surrounding the Chinese growth prospects and put renewed selling pressure on the Australian dollar. From a level above 0.93, AUD/USD dropped sharply to below 0.9250 and weakened further during the European session.
Despite the Chinese data, risk conditions held relatively firm during the day as European equity markets rallied. In this environment, there was no major demand for the yen on defensive grounds with unease surrounding Asian growth having a more important impact. USD/JPY found support below 99.50 and rallied to test resistance above the 100 level with a peak around 100.40.
In contrast to China, the Euro-zone economic data was stronger than expected. Following stronger than expected French PMI data the German PMI data also registered a solid monthly improvement and this helped push the Euro-zone manufacturing release above the 50 level for the first time for over two years. The data was significant in boosting confidence towards the Euro-zone economy with hopes that it could record positive GDP data for the third quarter. There was also greater optimism that Greece would receive the latest loan tranche which is due next week.
EUR/USD responded favourably to the PMI data with a fresh push higher as it reached a new one-month high just above the 1.3250 level while GBP/USD was dragged to a peak near 1.5390. There was a further reduction in long dollar positions which again had a negative impact.
US new-home sales data was stronger than expected with an annualised rate of 497,000 from a revised 459,000 previously. US Bond yields had moved higher early in US trading and the housing data helped maintain a firmer tone in yields. There was a dollar recovery on the back of bond movements as EUR/USD retreated to near 1.32. As has been the case throughout the past few days, there was strong Euro buying support on dips and the pair recovered quickly to consolidate above 1.3225 later in New York.
Wednesday’s UK economic data did not have a major impact with the CBI industrial orders index improving to -12 from -18 previously. The data did help underpin confidence towards the UK economy and there was a sense of optimism surrounding Thursday’s key GDP release with markets expecting growth of around 0.6% for the quarter. GBP/USD dipped only briefly towards the 1.53 level before optimism surrounding the GDP release helped trigger a quick recovery to around 1.5370.