The greenback rallied across the board to a lower 20-year high on Friday as the sell-off in global equities and rising US yields sparked risk aversion. Elsewhere, the pound tumbled to fresh 37-year lows on the market’s negative reaction to the UK’s mini-budget measures.
On the data front, Reuters reported that US business activity contracted for the third straight month in September, although the pace of the contraction slowed while improving global supply chains eased inflationary pressures on companies. S&P Global said on Friday that its flash US composite PMI output index, which tracks manufacturing and services, rose to 49.3 this month, from 44.6 in August .
A reading below 50 indicates a contraction in the private sector. Taking into account the slump during the first wave of the COVID-19 pandemic in spring 2020, third-quarter business performance was the weakest since the 2007-2009 global financial crisis.
Against the Japanese Yen, the Dollar found renewed buying at 141.77 in the Asian morning and advanced to 143.26 in the European morning on the USD’s broad based recovery. The pair then retreated to 142.38 on profit taking before extending daily gains to 143.46 on continued USD strength.
The single currency remained under pressure in Asia and fell to 0.9737 in Europe this morning after weak EU PMI data was released before starting a short-covering rally to 0.9775, partly due to cross-buying in the euro, particularly against the pound sterling. However, the pair later tumbled to a fresh 20-year low at 9669 on New York afternoon on the broad-based USD rally.
More from Reuters , The downturn in business activity across the euro zone has deepened this month and the economy is likely to enter a recession as consumers rein in spending amid a cost of living crisis, a survey showed on Friday. The services PMI fell to 48.9 from 49.8, its second month below 50 and the lowest reading since February 2021. The Reuters poll had predicted a more modest decline to 49.0.
Manufacturers also had a worse month than predicted. Their PMI fell to 48.5 from 49.6, compared to the forecast of 48.7 in the Reuters poll and the lowest since June 2020. An index that measures spending that feeds into the composite PMI fell from 46.5 to 46.2.
The British pound remained under pressure in Asia as well, falling to 1.1021 on the European morning following the UK mini-budget announcement. Cable then staged a short covering recovery to 1.1096 in New York morning before collapsing to a fresh 37 year low at 1.0840 on a broad based sell-off in sterling.
Reuters reported Britain’s new Finance Minister Kwasi Kwarteng said on Friday he would end the country’s higher personal income tax rate and lower the property tax rate from April next year as he unveiled a mini-budget to boost economic growth. Kwarteng said the UK will have a flat higher income tax rate of 40 per cent from April 2023. He also said he would cut the base rate of income tax to 19p in April 2023, a year earlier than expected. “That means a tax cut for over 31 million people in just a few months,” he told parliament.
Data to be released this week:
New Zealand Market Holiday, Japan Jibun Bank Manufacturing PMI, Jibun Bank Services PMI, Germany Ifo Business Climate, Current Ifo Conditions, Ifo Expectations, US National Activity Index and Dallas Fed Manufacturing Business Index on Monday.
Italy’s Non-EU Trade Balance, US Building Permits, Durables, Durables ex-Transportation, Durables ex-Defense, Redbook, Monthly Home Price, Consumer Confidence, New Home Sales and Richmond Fed Manufacturing on Tuesday.
British BRC Business Price Index, Retail Sales in Australia, Coincidence Index in Japan, Leading Index, Gfk Consumer Confidence in Germany, Consumer Confidence in France, Business Confidence in Italy, Consumer Confidence, Industrial Sales, MBA Mortgage Application in US, Merchandise Trade Balance, Wholesale Inventories and Pending Home Sale on Wednesday.
Italian Producer Prices, EU Business Confidence, Economic Sentiment, Industrial Sentiment, Services Sentiment, Consumer Confidence, Germany CPI, US GDP, PCE Prices, Initial Jobless Claims, Current Jobless Claims, Canada’s GDP and Average Weekly Earnings on Thursday.
New Zealand Building Permits, Japan Unemployment Rate, Industrial Production, Retail Sales, Consumer Confidence, Construction Orders, Housing Starts, NBS China Manufacturing PMI, Caixin Manufacturing PMI, Import Prices from Germany, Retail Sales, Unemployment Change, Unemployment Rate, Current Account of the UK, GDP, Nationwide House Prices, Swiss Retail Sales, KOF Indicator, France CPI, Consumer Expenditure, Producer Prices, Italy Unemployment Rate, CPI, EU HICP, Unemployment Rate, US Personnel Expenditure, Personal Income, Core PCE Price Index, Chicago PMI, University of Michigan -Sentiment and Canada budget balance on Friday.