US Dollar Looks to PMI Data, Fed-Speak for Rates Policy Clues

Talking Points:

Yen gains, Aussie and NZ Dollars fall as Asian stocks follow Wall St. lower
British Pound drops below 1.40 vs. US Dollar for the first time since 2009
US Dollar looks for rates policy clues in PMI data, Fed’s Lacker comments

Risk aversion returned in Asian trade, with regional shares following Wall Street lower and reverberating into G10 FX performance. The anti-risk Japanese Yen outperformed upward while the sentiment-geared Australian and New Zealand Dollars faced selling pressure.

The British Pound also declined as dovish policy bets compounded“Brexit” worries after BOE Governor Carney sounded a cautious tone in testimony to Parliament’s Treasury Select Committee yesterday. The central bank chief said he expects to be raising rates at some point within the next three years, which sounds far less urgent than previous comments hinting at “liftoff” in 2016.

Looking ahead, February’s preliminary US Services and Composite PMI reports are in focus. The surveys’ internals are likely to be more interesting than the headline figures, with measures of price growth at the forefront. January’s reports foreshadowed better-than-expected official CPI readings.

More of the same this time around may help set the stage for PCE data due on Friday and wage growth numbers embedded in next week’s Employment report. Upbeat outcomes may help resurrect 2016 Fed rate hike speculation, which is likely to boost the US Dollar but could trigger another aggressive risk-off push.

Scheduled comments from Richmond Fed President Jeff Lacker may also prove noteworthy. Lacker was the most hawkish member of the 2015 committee, pushing for a rate hike far sooner than the eventual move in December. It could be telling to see if his optimism has survived recent volatility, and why.

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