Underlying dollar sentiment remains weak.

The Euro-Zone PMI manufacturing index improved to a 5-month high of 48.8 for January from 47.8 and above consensus forecasts of 48.5 while the services-sector index improved to a 6-month high of 50.7 from 49.8 and above expectations of 50.2.

There was a strong recovery in business confidence to the highest level since May with net gains for employment. Although cost pressures eased further, selling prices increased at a slightly faster rate on the month.

The UK manufacturing PMI index improved to a 4-month high of 46.7 for January from 45.3 the previous month and above expectations of 45.4, but there was a dip in the services index to a 24-month low of 48.0 from 49.9 and below expectations of 49.6.

Services-sector companies were hurt by higher interest rates and weaker consumer confidence, but there was a significant improvement in business expectations amid hopes for a stronger global economy. There was a net easing of cost pressures and prices increased at the slowest rate since August 2021.

The US manufacturing PMI index edged higher to 46.8 for January from 46.2 and slightly above consensus forecasts while the services-sector index also improved to a 3-month high of 46.6 from 44.7 and above expectations of 45.0.

Overall business expectations increased to a 4-month high with a marginal increase in employment. Cost pressures increased slightly on the month for the first time in seven months, but output prices increased at the joint-slowest rate since October 2020.

There was a mixed dollar performance against major currencies on Tuesday as individual data releases dominated. The dollar index overall was static and only just above 7-month lows on Wednesday.

Australian consumer prices increased 1.9% for the fourth quarter and the headline inflation rate increased sharply to 8.4% for the fourth quarter from 7.3% and well above expectations of 7.6%.

Underlying inflation posted a quarterly increase of 1.7% compared with expectations of 1.5%.

The data triggered expectations of a more hawkish Reserve Bank policy.

The Bank of Canada will announce its latest policy decision on Wednesday. Consensus forecasts are for a further interest rate increase of 25 basis points to 4.50%. The bank will also release its latest Monetary Policy Report. The rate call and forward guidance will both be crucial for the Canadian dollar.

The Euro was unable to draw support from the slightly stronger than expected Euro-Zone PMI data. EUR/USD dipped to lows just below 1.0850. There was some relief surrounding the US PMI data. EUR/USD found solid support on dips and edged higher to just above 1.0900 on Wednesday and close to 9-month highs.

USD/JPY jumped after the US data, but retreated very quickly. USD/JPY peaked just above 131.00 before a slide to 130.00. Choppy trading continued with USD/JPY around 130.35 on Wednesday.

Hawkish SNB rhetoric failed to support the Swiss franc. EUR/CHF advanced to just above 1.0050 with USD/CHF around 0.9230.

Sterling was hurt by the latest batch of data releases. GBP/USD dipped to lows at 1.2265 before a recovery to 1.2320.

The Australian dollar secured limited net gains on Tuesday with AUD/USD just below 0.7050. The stronger than expected Australian inflation data triggered further Australian dollar buying with AUD/USD at 5-month highs near 0.7120. The Canadian dollar was hampered by caution ahead of Wednesday’s Bank of Canada policy. Decision, but was resilient. USD/CAD settled just above 1.3350 on Wednesday.

Economic Calendar

15:00BOC Monetary Policy Report4.5%4.25%
16:00BOC Press Conference

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.