Euro Is Rising, USD/JPY Falls Below 136.00, The Aussie Pair Also Gains
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The dollar weakened and the Chinese yuan gained on Wednesday after Chinese manufacturing activity rose at the fastest pace since April 2012, while the euro gained after regional price data in Germany boosted inflation concerns.
The Australian and New Zealand dollars also benefited from strong Chinese economic data that beat expectations, with the official Industrial Purchasing Managers' Index (PMI) rising to 52.6 last month from 50.1 in January.
Upbeat China PMI data showed that Chinese economic activity continued to gain momentum following the decision to reopen the economy in December. The situation sparked a rally in major Asian stock indices, with the Euro Stoxx 50 index opening in the red.
USD/JPY
The yen traded above 136.25 in the Asian session, but fell sharply below 136.00 in the European session. The USD/JPY pair has dropped significantly to 135.30 in the last hours. USD/JPY at the time of writing is just above 135.30 (135.3040).
The Japanese yen (JPY) strengthened slightly after data released today showed the Manufacturing PMI (Feb) was better than expected.
EUR/USD
On Wednesday, the trade of the euro pair is significantly positive, the EUR/USD pair has been rising since the beginning of the day. At the time of writing, the EUR/USD pair is trading around 1.0670.
Data released on Tuesday showed accelerating inflation in France and Spain, the eurozone's two largest economies, raising the European Central Bank's (ECB) expectations for interest rate hikes.
The pair is taking advantage of the ECB's hawkish expectations and the significant weakness of the US dollar. All eyes are on German inflation and US ISM PMI data.
Markets expect the Harmonized Index of Consumer Prices (HICP), the European Central Bank's preferred measure of inflation, in Germany to fall to 9% yoy in February from 9.2% in January. If the annual HICP unexpectedly approaches or even exceeds January's value, the euro's initial reaction is likely to outpace its rivals.
Markets are almost fully pricing in the ECB's final interest rate at 4% in 2023, and a strong inflation print from Germany should allow the ECB's hawkish bets to dominate the euro's valuation.
GBP/USD
The GBP/USD pair is not doing as well as EUR/USD, despite rising to levels above 1.2080 in the Asian session. In the European session, the cable pair fell towards 1.2020, but rebounded and rose above 1.2050.
Sterling rose marginally against a weaker dollar on Wednesday, trimming gains made earlier in the session after Bank of England Governor Andrew Bailey said nothing had been decided in terms of whether interest rates would need to rise again.
Meanwhile, British Prime Minister Rishi Sunak reportedly told his MPs to give the Democratic Unionist Party (DUP) time and space to study the details of the new deal.
The recent UK-EU deal or "Windsor Framework" has given the pound some momentum but it has struggled to maintain said gains. The reasons for this may be partly because the economic impact of the deal is unlikely to be significant for the UK economy as it does not improve trading conditions between the rest of the UK and the EU. A recent poll by the Bank of England found Brexit no longer a key uncertainty for UK businesses.
AUD/USD
AUD/USD gains on Wednesday. The Aussie Pair fell significantly at the beginning of the day, but then rebounded and maintained its upward trend. The Australian pair is trading above 0.6775 at the time of writing.
The Australian dollar fell below 67 cents after Q4 quarter-on-quarter GDP was 0.5% instead of the 0.8% forecast and compared to the previous 0.7%, which was revised up from 0.6%. The currency trimmed losses later in the day thanks to solid data from China.
Annual GDP by the end of December was 2.7%, in line with expectations. Today's GDP figures come ahead of the Reserve Bank of Australia's monetary policy meeting next Tuesday. They are expected to raise their target cash rate by 25 basis points (bps) to 3.60%. If it does, it will be the tenth increase since it started in May last year.
The latest inflation reading is well above the RBA target range of 2-3% at 7.8% year-on-year.
Source: finance.yahoo.com, investing.com
