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  Services PMIs – 05/04 – one notable trend in recent months has been an improvement in the services sector, despite trends in rising prices. France could well see a slowdown given the recent social unrest While manufacturing has been struggling and is in large part contracting, services activity has been picking up across the board, whether it be in the US, Europe or the UK. While energy prices have been falling, notably petrol prices, as well as that of natural gas consumers have had more disposable income than expected. This has had the effect of exerting upward pressure on services inflation which is prompting concerns over stickier than expected prices. As we come to the end of Q1 the latest March services numbers are expected to point to economic activity that has seen a significant pick up since the end of last year, although France could well see a slowdown given the recent social unrest. In February France services PMI came in at 55.5, and it will be hard to see a repeat of that. Germany has been improving but again could see a slowdown from 53.9, while in the UK this is expected to slow to 52.8. Italy and Spain are also expected to come in above 50, while in the US the latest ISM services survey is expected to remain resilient, slowing to 54.5 from 55.1.   Read next: This Friday the US Non-farm payrolls and unemployment rate go out - what a strong report will do to expectations about rates?| FXMAG.COM

The GBP/USD currency pair was traded with low volatility on Tuesday but still managed to move upwards, while the euro currency stood still and decreased more than it grew. Thus, even on a completely empty Tuesday, the pound sterling found reasons to start moving north again.   The price has re-fixed above the moving average and is still very close to its local maximums, which also coincide with the annual maximums. The British currency still cannot correct down properly, which is especially visible in the 24-hour timeframe. Occasionally, there are downward corrections on the 4-hour timeframe, but in most cases, they are purely formal.   The logic of the movements needs to be improved. Two weeks ago, when the Bank of England unexpectedly raised the rate by 0.5% for many, the pound did not grow. But yesterday, when it was a holiday in the States, it added about 40-50 points. The British economy is still weak and is holding out with the last of its strength not to slide into a recession.   US GDP exceeds forecasts by 0.7% and shows a value of +2% q/q. The Bank of England's rate continues to rise but is still lower than the Fed's. The British regulator can raise the rate several times but will likely stay within the Fed's rate. All this suggests that even if the dollar doesn't have strong reasons to grow now, it certainly has no reasons to fall. However, in most cases, we continue to observe the pair's growth. Only business activity indices in the manufacturing sectors can be highlighted for the first two days of the week. In the US and UK, the indices fell synchronously for June and have long been below the "waterline" of 50.0. Again, the pound did not have an advantage over the dollar due to macroeconomic statistics.     Thursday and Friday promise to be "stormy"! The week's most important events are concentrated in its last two days. Today, of course, the Fed's minutes will be published. In the European Union and Britain, the second estimates of business activity indices for June will become known, but all these are secondary data. It is unlikely that the Fed's minutes will surprise traders who are already confident in a rate hike in July, as well as after Jerome Powell's five speeches over the past weeks, in which he laid everything out. Therefore, the main movements are planned for Thursday and Friday, when the ISM, ADP, unemployment benefit claims, the number of job openings, NonFarm Payrolls, and the unemployment rate will be released in the US.   As we can see, almost all reports are related to the labor market, which the Fed continues to monitor closely, and which has a priority for the regulator and the market. However, even if the reports are disastrous (which is currently hard to believe), the Fed will not change its plans to raise the rate.   And for the GBP/USD pair, it doesn't matter at all. The pound grows for a reason and without. If statistics from overseas turn out to be weak, it will merely get a new reason to grow against the dollar. If the statistics from the US turn out to be strong, we will see a new pullback down, a maximum of 100 points, and the Fed's position on the rate will not change. Thus, the market's local reaction could be significant.   In the medium term, these reports will not affect the situation in the market. The average volatility of the GBP/USD pair over the last 5 trading days is 94 points. For the pound/dollar pair, this value is "medium." Therefore, on Wednesday, July 5, we expect movement within the range limited by levels 1.2612 and 1.2800. The Heiken Ashi indicator's reversal down signals a possible new downward movement wave.    

FX Daily: Unwinding the spurious dollar rally The dollar strengthened across the board yesterday with no clear catalyst. We suspect that in an environment that keeps pricing large Fed cuts, USD rallies aren’t very sustainable. We’ll be awaiting the next leap higher in short-term USD rates to endorse a dollar rebound. Today, the focus is on PMIs and the Bank of Canada, which may disappoint dovish bets.   USD: Sticky Fed cut bets hinder USD rebound The dollar rebounded sharply yesterday as the risk-on mood generated by Beijing’s reported stock support package evaporated during London trading hours. The Hang Seng is having another good day today, even though Beijing’s measures appear an emergency and temporary solution, more a symptomatic treatment rather than addressing fundamental economic concerns. European and US equities failed to follow the Hang Seng's gains yesterday but also showed broad resilience. The rise in US rates did not look large enough to justify the rotation from European FX (EUR and GBP) back into the dollar. In all, we admit the dollar jump was quite surprising, and without a clear catalyst, and therefore see room for the dollar correction initiated overnight to extend today. One dynamic to keep an eye on – however – is the impact on markets of US Republican Primaries. The underperformance of the Mexican peso since the start of the week may be indicating markets are pricing in a larger chance of Donald Trump winning the presidency after Ron DeSantis endorsed him. Trump won the New Hampshire primary yesterday, securing 55% of votes and casting serious doubt on the future of Nikki Haley’s campaign. It all seems rather premature, but Banxico is also on the brink of a rate cutting cycle – as discussed here by our rates team – which can compound to keeping the peso soft. This should not translate into a one-way direction for the peso though, we still expect to see high demand in the dips, not least due to the preserved carry attractiveness and our view of a US dollar decline. Today, the focus will be on S&P Global PMIs across developed countries. Markets have become gradually more sensitive to this US survey, even though the ISM remains the main reference. Expectations are for a tiny decline in manufacturing PMIs (already in contraction area) and a stabilisation in services. We don’t have a strong bearish view on the dollar in the short-term, but yesterday’s moves did appear overdone in an environment where Fed funds futures still price in 130/140bp of cuts this year. We’ll be more convinced of the sustainability of a near-term dollar rebound once short-term Treasury yields take another leap higher (two-year rates are down nearly 10bp since yesterday). Revamped rate hike bets in Japan are pushing USD/JPY lower this morning, favouring a broader dollar correction which could have legs today. Francesco

Asia Morning Bites South Korea's inflation comes in below expectations. US non-farm payroll release later tonight. Powell slated to speak again at the weekend.   Global Macro and Markets Global markets:  Despite some reasonably strong data, US Treasury yields dipped slightly on Thursday. 2Y yields were down less than a basis point, but only after dropping below 4.14% and then recovering later on. 10Y yields followed a similar pattern of decline and recovery taking them down 3.2bp to 3.97%. Jerome Powell has a TV interview scheduled for the weekend, which could be interesting if he deviates from the recent message at the FOMC. Currencies also had a choppy day. EURUSD dropped below 1.08 at one point but is back up to 1.0874 now. Likewise, the AUD came close to dropping through 65 cents but has recovered to 0.6575 now. Cable did even better, finishing up on the day after a less dovish than expected Bank of England meeting. The JPY was roughly unchanged at 146.47. Other Asian FX were evenly split with half making small gains, led by the PHP and THB, and half making small losses. The CNY has drifted up to 7.1805. US equities recovered their losses from the previous day. The S&P 500 rose 1.25%, while the NASDAQ gained 1.3%. Equity futures also look quite positive. Chinese stocks had a slightly more positive day. The Hang Seng rose 0.52%, but the CSI only managed a 0.07% gain. G-7 macro: It was an interesting day for US macro yesterday, delivering support for both hawks and doves on the rates outlook. On the dovish side, non-farm productivity rose, and there was also a slight increase in jobless claims figures. On the other hand, the manufacturing ISM rose strongly, even though it remained below the breakeven 50 level and there was a jump in the prices paid component too which jumped up to 52.9 from 45.2. The new orders index was also strong. Later today, there is the US labour report. Following the soft ADP figure earlier this week, there may be some downside risk to the consensus view of a decline in employment growth from 216K in December to 185K in January.    South Korea:  Consumer inflation eased to 2.8% YoY in January (vs 3.2% in December, 2.9% market consensus), back to the 2% level for the first time in six months. But the decline was mainly due to base effects, caused by a one-off energy bill hike last January. Core inflation, excluding agricultural products and oils, also levelled down to 2.6% (vs 3.1% in December). In a monthly comparison, inflation rose 0.4% MoM nsa in January after staying flat in December. Fresh food, utility, and service prices rose, more than offsetting the decline of manufactured food and gasoline prices. The government has decided to freeze utility fees at least for the first quarter of the year and offered some tax cuts on imported goods. If the conflict in the Red Sea escalates further, the fuel subsidy program could be extended beyond March, so the upside risk is quite limited in the near term. Today’s slower-than-expected inflation probably won’t change the BoK’s hawkish stance any time soon. As mentioned earlier, if there were no government subsidies on energy and public services, CPI inflation would have been higher than it is today, and once these programs end, there may be a price spike later this year. So, choppy inflation ahead is expected. The BoK will likely take a wait-and-see approach to gather more evidence about the continued cooling of inflation.