Australian Exchange foreign exchange trading reminds: US economic activity is close to stagnation, the dollar has fallen back, and poor data may cause the euro and the pound to fall further

The dollar index weakened on Wednesday, closing down 0.22 percent at 103.37 after data showed U.S. business activity came close to stalling in August, posting its slowest growth since February. Ahead of Powell's speech at the Global Central Bank Symposium, traders expected limited volatility in currency markets. Capital Economics said weaker-than-expected PMI data for European economies, with the euro and pound set to fall further against the dollar in the coming months.

The dollar index fluctuated in a narrow range in early Asian trading on August 24, Beijing time, and is currently trading around 103.35. The dollar index weakened on Wednesday, closing down 0.22% at 103.37. Earlier data showed that U.S. business activity was close to stagnating in August, recording the slowest growth since February, as demand for new business in the huge service sector contracted. S & P Global said the preliminary value of the U.S. composite purchasing managers' index (PMI), which tracks manufacturing and services, fell to 50.4 in August from 52 in July, the largest decline since November 2022.Michael Brown, a market analyst at Trader X, said the data did "pretty much threaten the'American exceptionalism 'that the market has been trading on for the past few weeks."

Kevin Flanagan, head of fixed income strategy at exchange-traded fund firm WisdomTree, said Federal Reserve Chairperson Jerome Powell is likely to stick to the hawkish message from the last meeting and its meeting notes in his speech to the annual Jackson Hole meeting on Friday.He said the US FOMC was "relatively happy with the results so far" after a sharp, rapid rate hike cycle. US inflation remains well above its 2 per cent target, but he believes the Fed is "realistic enough to know that this may take a bit of time". However, any comments from Powell on the neutral rate could send a shock through the markets.

Ahead of Federal Reserve Chairperson Jerome Powell's remarks at the Global Central Bank Symposium in Jackson Hole, Wyoming, on Thursday through Saturday, traders expected limited volatility in currency markets.

A strong labour market and increasingly resilient consumer spending have eased recession fears for months and led to an upward revision of gross domestic product growth forecasts, but Wednesday's data painted a tepid picture.

The dollar index hit a more than two-month high of 103.98 in early trading on Wednesday after dismal business activity data from Europe weighed on the euro and sterling.

The preliminary HCOB eurozone composite purchasing managers' index, compiled by S & P Global, fell to 47.0 in August from 48.6 in July, the lowest since November 2020. The services PMI fell to 48.3 from 50.9, the first time this year that it has been below the 50-point threshold.

Germany's composite PMI fell to its lowest level since May 2020 as manufacturing output contracted and services activity contracted again.

After the German data was released, the euro fell to 1.0802 against the dollar, its lowest level since mid-June, before rebounding to close 0.16% higher at 1.0862.

On Wednesday, the pound also fell to its lowest level in more than a week against the dollar at 1.2614, and finally closed down 0.07% at 1.2722. In early Asian trade on Thursday, the pound against the dollar refreshed its low since June 30 to 1.2614 and is currently trading around 1.2723.

In the cycle of the Bank of England's continued interest rate hikes, UK private sector output fell sharply in August.ING economist Smith warned that the risk of the Bank of England tightening too much has risenMr. Smith pointed out that the Bank of England had been focused on reducing inflation, but that it remained high because of continued wage growth. And given the highly fixed nature of the UK mortgage market, much of the effect of the BoE's rate hikes has yet to be felt. In this way, the UK economy appears to be gradually stagnating and may even fall into recession, although there should be moderate growth this quarter. Mr. Smith said the poor PMI data would give the BoE pause for thought as the tightening cycle drew to a close

Mr. Brown at Trader X said: "I don't think anyone would be particularly surprised by the weakness in the UK or Europe, or the earlier plunge in sterling and the euro, but the US data is more worrying given the resilience of the US economy so far this year."

Jonathan Petersen, senior market economist at Capital Economics, said in a note: "The weaker than expected PMI data for European economies is consistent with our view that the euro and sterling will fall further against the dollar in the coming months."

According to Goldman Sachs, three main conclusions can be drawn from the European PMI data. First, growth momentum in the euro area appears to be weaker than expected due to a sharp deterioration in activity in the services sector. Wednesday's weak euro area data was attributed to a range of factors, including a reduction in inventories, weak demand from abroad, and tighter budgets for households and businesses. Second, underlying price pressures are becoming more persistent despite a weakening in economic activity. This is particularly true in Germany, where the services price component rose for the second consecutive month. Third, growth momentum in the UK also appears to be slowing against a backdrop of weaker demand, while inflationary pressures have eased.

Traders cut ECB tightening bets, odds of a 25 basis point rate hike in September now 40%。

Melanie Debono, senior European economist at Pantheon Macroeconomics, said the PMI data for the Eurozone provided further evidence that service sector inflation should slow down enough in the coming months to persuade the European Central Bank not to raise interest rates beyond September. The services PMI fell below the constant 50 level for the first time in seven months due to a decline in German manufacturing activity. She said that while price pressures on service inputs did increase in August according to the data, which could be a sign of increased demand for wages, these companies were still raising prices to customers at a slower rate than in July. Meanwhile, Debono noted that industrial prices are currently in outright deflation, despite the fact that German companies decided to cut prices in August less than in July.

At the same time, the dollar rose to a more than one-week low of 145.89 against the yen on Wednesday, a level that has traders on alert watching for any signs of intervention. The dollar ended down 0.72% against the yen on Wednesday at 144.83.

The dollar's break above 145 against the yen last year sparked intervention.Speculation has started that if the yen weakens further, Tokyo could soon re-enter the market to support the yen.

Thursday's key data and events

Institutional Perspectives Summary

Rabobank estimates that the euro will trade at 1.08 against the dollar within three months.

Jane Foley, head of foreign exchange strategy at Rabobank, said that the three-month forecast for the euro against the dollar remains unchanged at 1.08; before the Federal Reserve cuts interest rates to make way for a weaker dollar outlook, there is a risk that the euro will fall back to 1.06 against the dollar in six months.

Nomura is betting that the pound will fall sharply in autumn! It fell to 1.26 at the end of September and 1.22 at the end of October.

"Unexpected UK numbers could turn lower as we move into a late-cycle slowdown," Nomura strategists wrote in a note on Tuesday. Nomura has been forecasting for months that the pound would fall to 1.26 against the dollar and around 1.1235 against the euro by the end of the third quarter, but this week it told clients it could fall to 1.22 against the dollar by the end of October;

3. Citi: The European Central Bank may only raise interest rates again in September.

According to Citi, the poor PMI data indicates that the Eurozone is once again facing growth risks. Despite the bottoming out of the German manufacturing PMI and the improvement in the French services PMI, the overall data remains weak. All eyes are on next week's Eurozone CPI data, which will determine whether the European Central Bank needs to raise interest rates in September. From the PMI data, the risk of stagflation is prevalent in the services sector, as economic activity starts to contract, while prices surge again, or even pick up the pace. This is a bad signal for the ECB, which may have no choice but to raise interest rates again in September, given the persistent inflation. The technical side of the EUR/USD currently looks bearish. If it falls below 1.0797 on the 200-day moving average, there will be no major support until 1.0667 (June low);

United Overseas Bank of Singapore: The United States and Japan have room to rise above last week's high of 146.55.

Lee Sue Ann, economist at UOB Group, and Quek Ser Leang, market strategist, believe that the dollar may rise further against the yen in the short term. As we have emphasized, although the exchange rate has rebounded from 144.92, there is little upward momentum. However, the exchange rate has room to rise above last week's high of 146.55, but it remains to be seen whether there is enough momentum to push it to the next important resistance level of 147.50. Overall, only a fall below 144.50 (with strong support unchanged) indicates that the exchange rate will not rise further.