THE US dollar slumped and China’s yuan gained on Wednesday (Mar 1) after China’s manufacturing activity expanded at its fastest pace since April 2012, while the euro rose after regional German inflation data signaled that price pressures remain high.
The Australian and New Zealand dollars were also among the beneficiaries of the robust Chinese data, which smashed expectations – the official manufacturing purchasing managers’ index (PMI) shot up to 52.6 last month, from 50.1 in January.
China’s non-manufacturing activity also grew at a faster pace in February, while S&P Global’s Caixin manufacturing PMI reading for last month likewise surpassed market expectations.
The onshore yuan finished the domestic session at 6.8854 per US dollar, its strongest close since Feb 21, while the offshore yuan jumped 1.3 per cent to 6.8683 per US dollar, set for its largest one-day gain since late November.
“The data confirms expectations that the growth outlook has improved quite significantly in China, so it’s positive for risk sentiment,” said Niels Christensen, chief analyst at financial services group Nordea.
“This has put the (US) dollar on the defensive.”
The New Zealand dollar surged 1.3 per cent to US$0.6263, while the Australian gained 0.7 per cent to US$0.6774, reversing the slide to a two-month low earlier on Wednesday, following soft domestic economic data.
The two currencies are often used as liquid proxies for the yuan.
Meanwhile, inflation data from five German states was largely unchanged in the high single digits in February, pointing to no let-up in stubborn price pressures at the national level.
Preliminary pan-German inflation data will be published at 1300 GMT, calculated using data from up to 16 German states.
Figures released on Tuesday showed accelerating inflation in France and Spain, two of the eurozone’s biggest economies, pushing up expectations for rate hikes by the European Central Bank.
The euro was last up 0.9 per cent against the US dollar at US$1.0672, on track for its biggest daily gain since Feb 1.
“The euro is being well-supported by the inflation data,” Nordea’s Christensen said. “We’re looking for a more solid euro area inflation reading tomorrow than we had expected going into this week.”
Sterling rose 0.2 per cent to US$1.2049, although it trimmed earlier gains after Bank of England governor Andrew Bailey said it was possible the central bank had already come to the end of its rate-raising cycle.
The pound surged 1 per cent at the start of the week after Britain struck a post-Brexit Northern Ireland trade deal with the European Union.
Against a basket of currencies, the US dollar index fell 0.7 per cent to 104.25.
The index rose nearly 3 per cent in February, its first monthly gain after a four-month losing streak, as a slew of strong US economic data in recent weeks raised market expectations that the Federal Reserve (Fed) has further to go in hiking rates.
Futures pricing currently suggests a peak of around 5.4 per cent in the Fed funds rate by September.
“We see the Fed going to 5.5 per cent, with a growing risk of 6 per cent,” said Michael Every, global strategist at Rabobank. “The Fed is hiking. Others can’t follow or match. The dollar will soar.”
Elsewhere, the US dollar fell 0.65 per cent against the Japanese yen to 135.36, having spiked close to 5 per cent against the yen in February, its largest monthly gain since last June. REUTERS
Source: www.businesstimes.com.sg
