Slightly stronger than expected Chinese PMI surveys helped underpin risk appetite on Monday and also curbed yen demand. Bank of Japan Governor Kuroda stated that the bank won’t hesitate to adjust monetary policy if required and USD/JPY pushed to highs around 102.60 before drifting slightly lower at the European open as exporters took advantage of higher levels.
The Euro-zone PMI manufacturing data as a whole was marginally above expectations, but there was further underlying divergence with France and Spain results particularly disappointing and this did tend to undermine the Euro slightly, especially with a sharp decline in German machinery orders.
EUR/USD then dipped sharply during the morning session to lows below 1.3550, undermined in part by the data releases and there was also disappointment at the inability to hold above the 1.36 level early in the session with technical divergence calling for a significant downward correction. There was also a more defensive tone for the Euro ahead of this week’s ECB meeting with investors reluctant to add to long positioning.
The US ISM manufacturing data was significantly stronger than expected with an increase to 57.3 for November from 56.4 previously, the highest reading since May 2011. The data helped boost confidence in the US economy ahead of critical payrolls data on Friday and was certainly instrumental in keeping Fed tapering prospects alive which helped underpin the dollar.
EUR/USD dipped to lows around 1.3525 before finding some support with buying interest reported on approach to 1.3500. USD/JPY maintained a strong tone following the data as it attempted again to move above the 103.0 level.
Gold prices again came under pressure which acted as a drag on commodity currencies. This was most notable in USD/CAD which pushed to two-year highs above 1.0620 while AUD/USD was initially more resilient, but faced selling pressure above the 0.9150 level.
Sterling had been a big mover in Asia on Monday with a GBP/USD break above 2013 highs at 1.6380 triggering a surge in buying interest and stop-loss Sterling buying which pushed the pair to a peak around 1.6440 as EUR/GBP also came under fresh selling pressure.
The UK data was also stronger than expected with an increase in the PMI manufacturing index to 58.4 for November from a revised 56.5 which was the highest reading since March 2011. Sterling initially spiked higher, but could not hold the gains in a fundamentally highly-charged week with longer-term selling also in evidence. GBP/USD dipped back to the 1.6350 area before finding fresh support.