Bonds Asia: Strong Economic Data Slightly Rebounds the US Dollar Index

March 25, according to S&P Global’s preliminary data released Tuesday, the Eurozone’s March composite PMI fell from 51.9 in February to 50.5, below analysts’ expectations of 51, hitting the lowest level since May last year, but still barely holding above the 50 mark that separates expansion from contraction. The services PMI preliminary reading dropped to 50.1, far short of the expected 51.1; the manufacturing PMI preliminary reading, however, rose against the trend to 51.4, the highest in 45 months, and beat the expected 49.6. Germany and France cooled at the same time. Germany’s composite PMI fell more than expected to 51.9. Among them, manufacturing unexpectedly strengthened, partly because customers stocked up early to avoid supply-chain risks brought about by the war. France’s composite PMI slid below expectations to 48.3, the lowest in five months, and has remained below the expansion/contraction line for three consecutive months. In a statement, Chris Williamson, chief business economist at S&P Global, said bluntly, “The Eurozone’s March PMI flash reading is ringing an alarm bell for stagflation— the Middle East war is significantly pushing up prices while curbing growth.” He noted that as energy prices soar and the war disrupts supply chains, companies’ costs are rising at the fastest pace in more than three years.

Also on Tuesday, Federal Reserve Governor Michael Barr said the Fed may need to keep interest rates steady “for a period of time” before any further rate cuts are necessary. He pointed out that inflation remains persistently above the Fed’s 2% target, along with risks stemming from ongoing conflict in the Middle East. In remarks prepared for a community development conference, Barr said the labor market “seems to be moving toward stability.” By contrast, Barr said, “We are still facing a situation where inflation is significantly higher than the 2% target,” and the central bank’s preferred personal consumption expenditures price index is about one percentage point above that level. Barr said that while he “hopes” inflation will decline this year, that hope may be at risk as rising oil prices push up gasoline and other consumer costs. He said, “Before considering further cuts to the policy interest rate, I would like to see evidence that goods and services price inflation continues to fall, provided the labor market conditions remain stable.”

Today, the data to watch include: the UK February CPI year-over-year rate; the UK February retail prices index year-over-year rate; the UK February unadjusted input PPI year-over-year rate; Germany March IFO business climate index; the US February import price index month-over-month; and the US fourth-quarter current account.

U.S. Dollar Index

The U.S. Dollar Index fluctuated and edged higher yesterday. The daily chart closed slightly up, with the spot price trading near 99.10. In addition to some support for the exchange rate from technical buy orders formed near the 99.00 level and short-covering, persistent geopolitical tensions and the market’s renewed risk-aversion sentiment also provided some support. Moreover, strong economic data released by the United States during the period also offered some support to the exchange rate. Today, watch for resistance near 99.50; support is seen near 98.50.

EUR/USD

The euro yesterday traded in a range and consolidated. The daily chart closed slightly lower, with the spot price trading near 1.1620. Besides profit-taking that weighed on the exchange rate, the rebound in the U.S. dollar index supported by factors such as short-covering and persistent risk-aversion sentiment also became an important factor pressuring the euro lower. However, during the period, generally strong economic data across the Eurozone limited the downside for the exchange rate. Today, watch for resistance near 1.1700; support is seen near 1.1550.

GBP/USD

The pound yesterday fluctuated and consolidated. The daily chart closed slightly lower, with the spot price trading near 1.3430. Aside from profit-taking that weighed on the exchange rate, the rebound in the U.S. dollar index, supported by strong economic data and persistent risk-aversion sentiment, was also an important factor pressuring the pound to weaken. Economic data released in the UK during the period were mixed in terms of good and bad, and had limited impact on the market. Today, watch for resistance near 1.3500; support is seen near 1.3350.

A vast amount of information and precise analysis—exclusively on the Sina Finance APP

Edited by Chen Ping