We will refrain from trying to call (yet another) base for the USD against the EUR and GBP at the present time, as the greenback is getting no favours from the political backdrop, which has claimed another casualty on Capitol Hill: Scaramucci lasting just 10 days in his post. The positive sentiment over Europe has led to sweeping gains in EUR/USD in recent weeks and months, bolstered by a revival in EUR/CHF as longer term investors put their money 'to work' again.
Earlier on this morning we saw manufacturing PMIs all coming in a touch softer than expectations, but all still well above the expansionary 50.0 pivot to prompt little change in overall levels. The spot rate has maintained a 1.1800 handle to suggest a further upside test at some point, but this will depend on whether we get a glimmer of light from the US data this afternoon, when the core PCE numbers are released at the early am slot, followed up by the ISM manufacturing survey later on.
In the UK, still no signs that the uncertainty factor is hindering activity in the manufacturing sector as the PMI tipped 55.0 to beat expectations, but with the BoE meeting on Thursday, there was limited upside to be had with cable extending gains to 1.3240 before topping out. 1.3200 continues to hold, having taken out this level in the NY session last night. Adding to restraint on the topside is a EUR/GBP rate trapped inside 0.8900-0.9000, with the upper end heavily offered as many of us had anticipated. Given broader EUR strength, this has come as a surprise to a degree, and underlines lesser concerns over Brexit which will no doubt impact in some way further down the line.
As for the risk mood in general, this is holding up as is clearly by the teflon-coated indices on Wall Street. Nothing seems to impact in a material way on equities, and to this end, both the JPY and CHF will go back to their funding mode - even against the USD. USD/JPY tested 110.00 this morning and held, but USD/CHF is now lagging its EUR/CHF counterpart (naturally), but losses in the spot rate may have been instrumental in dragging the lead driver back under 1.1400 - albeit briefly.
AUD/USD is back under 0.8000, and there was enough there in the RBA statement to maintain the balance for now. It is hard to say whether it was deemed less hawkish or not so dovish, but this is what drives currencies these days, so on that basis, it was a successful delivery by the central back. Nevertheless, currency gains will impact on the economic outlook to contain higher levels, but no need to sell aggressively just yet as growth and inflation are still expected to rise.
It is the turn of the RBNZ next week, so for now the NZD is drifting a little, but more to the downside, and this pushes the AUD/NZD rate tentatively back towards 1.0700 again, but we have the jobs report in NZ at the start of the Asian session ahead, with the Fonterra dairy auction result due out ahead of the London close before this.
USD/CAD is still finding support south of 1.2450 in the meantime. 1.2410-15 has been resilient in the face of constant pressure in the aftermath of the FOMC last week, the data on Friday and amid bouts of politically led USD weakness in general. That the support is coming in, despite the push up in oil, is also a potential signal that near term lows are in place - but no runaway moves on the upside, and especially not until we get the payrolls data in both the US and Canada on Friday.
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