Fed minutes on Wednesday.

The Euro-Zone manufacturing sector edging lower to a 2-month low of 48.5 from 48.8 previously and below consensus forecasts of 49.4. In contrast, the services-sector figure improved to an 8-month high of 53.0 from 50.8 and above expectations of 51.0. The composite output index also strengthened to a 9-month high.

Input prices for manufacturing increased at the slowest rate since September 2020, but there were stronger increases in services while overall increase in output prices remained very high, but at a slightly slower pace than in January.

The UK PMI manufacturing index improved to a 7-month high of 49.2 from 47.0 and above expectations of 47.5. There was a strong improvement in the services sector to an 8-month high of 53.3 from 48.7 and well above consensus forecasts of 49.2.

There was net growth in new orders for the first time in seven months with the gains again led by the services sector.

There was a slight easing of input-price inflation while there was only a slight slowdown in the rate of output-price increases.

The data eased fears over a UK recession.

The US PMI manufacturing index improved to a 4-month high of 47.8 for February from 46.9 the previous month and slightly above consensus forecasts of 47.1. The services-sector index also recovered into expansion territory at an 8-month high of 50.5 for February from 46.8 and well above expectations of 47.2.

There was still a small decline in new orders. Input prices increased at the slowest rate since October 2020, but there was a stronger rate of increase for output prices.

Overall business confidence increased to a 9-month high.

US yields moved higher after the PMI data releases with the 10-year yield close to 3.95% and the highest level for over 3 months.

The dollar posted net gains after the data releases with USD/JPY testing resistance above 135.00. The headline CPI inflation rate declined to 5.9% for January from 6.3% previously and below consensus forecasts of 6.1%. This was the lowest headline rate since March 2022.

The core rate declined to 5.0% from 5.4% and below expectations of 5.5%.

The Reserve Bank of New Zealand (RBNZ) increased interest rates by a further 50 basis points to 4.75% which was in line with expectations.

The RBNZ expects rates to increase further with a projected peak at 5.25%.

Minutes from January’s Federal Reserve meeting will be released on Wednesday. At the meeting, there was a rate increase of 25 basis points to 4.75%.

The Euro was unable to gain support from the PMI data. A stronger than expected reading for German ZW economic sentiment index also failed to impress markets. Higher yields underpinned the dollar after the US open.

EUR/USD rallied at times but retreated overall to around 1.0650 and briefly dipped below this level. EUR/USD traded just above 1.0650 on Wednesday.

Higher US yields undermined the yen, although it recovered slightly from intra-day lows. USD/JPY peaked at 135.20 before a retreat to 134.80 and settled around 134.80 on Wednesday.

Higher global bond yields sapped support for the Swiss franc. EUR/CHF settled around 0.9880 with USD/CHF around 0.9270.

Sterling surged after the stronger than expected PMI data. GBP/USD strengthened to highs above 1.2100. Weaker equities curbed potential buying to some extent with GBP/USD just above 1.2100 on Wednesday.

The Canadian dollar dipped after the lower-than-expected inflation data. USD/CAD strengthened to highs around 1.3530 after the inflation data and traded around 1.3545 on Wednesday.

Weaker equities and a firm US dollar undermined the Australian dollar. AUD/USD retreated to near 0.6850. Weaker than expected wage increases also sapped support on Wednesday with AUD/USD around 0.6835. The New Zealand dollar posted gains after the RBNZ rate decision with NZD/USD around 0.6230.

Economic Calendar