Forex: Euro and Pound May Rise as PMIs Set Tone for ECB, BOE Meetings

Talking Points

Aussie and NZ Dollars Rise with Asian Stocks on Chinese PMI Data
Japanese Yen Sold as Carry Trades Rise Amid Swell in Risk Appetite
Euro and Pound to Advance if PMIs Dent BOE, ECB Stimulus Bets

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The sentiment-sensitive Australian and New Zealand Dollar soared to start the trading week, pulled higher amid a broad-based improvement in risk appetite on the back of better-than-expected Chinese Manufacturing PMI data released over the weekend. Official figures showed the factory sector expanded at the fastest pace in 11 months in August.

An analogous measure from HSBC showed a likewise encouraging (albeit less dramatic) result. The bank reckons manufacturing sector activity expanded for the first time in four months in August. The Japanese Yen underperformed as the risk-on mood encouraged capital flows into carry trades funded in terms of the perennially low-yielding currency. The MSCI Asia Pacific regional benchmark stock index rose 0.8 percent.

Looking ahead, the final revision of Augusts’ Eurozone Manufacturing PMI is expected to confirm the gauge hit a 26-month high. The Euro continues to track the monetary policy outlook as implied by the spread in front-end bond yields. That means a strong outcome that lowers the probability of further easing to be announced at this week’s ECB monetary policy announcement is likely to buoy the single currency, and vice versa.

UK Manufacturing PMI is likewise expected to show improvement, with the index forecast to rise to 55.0 in August, the highest since March 2011. Here too, a strong outcome is likely to prove supportive, with the British Pound likely to rise as if news-flow argues against an expansion of BOE stimulus efforts before this week’s MPC policy meeting.

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