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The US dollar traded higher against most major currencies on Monday. The gains were sharp and abrupt, coming shortly after Markit Economics’ PMI reports. According to the latest numbers, manufacturing and service sector activity expanded at a faster pace in the month of November. This improvement is a surprise considering that COVID-19 cases shot up this month forcing states to roll out new restrictions. However, these statistics also explain why some governors have gone to lengths to avoid new restrictions despite alarming coronavirus cases. At some point with hospitals overwhelmed they may need to consider but in the meantime, the fear of what’s to come after Thanksgiving did not stop equity and currency traders from celebrating today’s report. The Dow Jones Industrial Average rose more than 200 points and USDJPY rose back above 104. The good news is that stronger PMIs ease concerns about a deep contraction in growth this month so even if there’s a material slowdown in late November, early December, it will be from a higher base. Consumer confidence numbers are due for release tomorrow and while the PMIs were better, we still believe that election uncertainty and rising virus cases will dampen sentiment.

It's not unusual for the Japanese Yen to sell-off the most in risk-on mode but the Australian dollar shrugged off stronger PMIs to clock in the day as the second worst-performing currency. Data from Australia this month has been very good with labor market conditions and activity rebounding after the government eased restrictions in Victoria. Last night we saw improvements in manufacturing and service sector activity. However ongoing tensions with China are a problem for investors who see relations worsening after Australia’s trade minister demanded China explain why they have been singled out on trade. The New Zealand dollar also sold off despite very strong retail sales in the third quarter. Spending in the third quarter rebounded by 28%, up from -14.8% in Q2. There’s no doubt that both currencies fell victim to profit-taking after strong moves this month. The Canadian dollar ended the day unchanged but off its highs from the early NY session.

Meanwhile, EUR/USD rose briefly above 1.19 before u-turning quickly on the back of stronger US data. Eurozone PMIs were not as bad as economists feared with manufacturing holding up better in Germany and the region as a whole this month. Given the breadth of recent lockdowns, a more significant contraction was expected. That could still happen as these numbers are subject to revisions. Germany’s IFO report is due for release tomorrow – there’s a good chance business confidence soured more significantly than activity last month and if that’s the case, we could see losses in EUR/USD accelerate quickly.

The only currency that outperformed the greenback today was sterling. Between stronger PMIs, talk of a Brexit deal this week (or this month), and the government’s decision to end its stay at home order and ease restrictions starting December 2nd, investors had plenty of reasons to snap up the currency. The manufacturing PMI index actually came in at 55.2, well above the consensus forecast of 50.5. Service sector activity slowed with the PMI index dropping to 45.8 from 51.4 but this number along with the composite were still higher than forecast. While Brexit talks will decide the fate of sterling, today’s developments helped sterling outperform euro and the US dollar. With a reopening date in sight, it could attract even more demand, particularly against euro because Germany has talked about extending their lockdown into late December.