The US Dollar Finds Footing

The dollar remains in a narrow range against the Japanese yen and is holding just below JPY107.00. Like yesterday, support was seen a little below JPY106.70, while the buying slows above JPY106.90.Remarkably, the range of one of the most actively traded currency pairs can trade in such a narrow range. Beijing must be envious. It would also like to see such stability, which it achieves awkwardly and with greater official controls. The PBOC set the dollar's reference rate at CNY6.4565, a little firmer than anticipated. The greenback slipped to a four-day low near the fix but rebounded to around CNY6.4675. The benchmark seven-day repo rate fell for the third day, the longest streak in nearly two months. It fell by 24 bp today to 1.84%. The PBOC injected CNY10 bln through its open market operations, offsetting the maturing amounts. The Australian dollar fell three cents in the last two sessions of last week to briefly trade below $0.7700. After rising for the third session today, it has come back off after stalling near $0.7840. 


Ahead of the UK's budget, the Chancellor of the Exchequer has made some preliminary announcements. These include the extension of the furlough program. The government will continue to pick up 80% of the wages through June and at a lower rate through September. Other measures expected to be announced include an extension of the VAT holiday for the hospitality sector and GBP20 a week add-on for social security payments. Many are also looking for Sunak to suggest fiscal policy will be brought back under control as soon as possible and is expected to announce plans to phase-in corporate tax increases. Separately, the UK preliminary PMI for services and composite was revised lower from the preliminary readings, but at 49.5 and 49.6, respectively, showed improvement from January (39.5 for services and 41.2 for the composite).  

Although Germany's service PMI was shaved from the preliminary reading, which was also already lower than January, the manufacturing sector's strength lifted the composite to 51,1 from 50.8 in January. France's service PMI was revised up, but slide to 45.6 from 47.3 in January proved too great a weight, and the composite stands 47.0 from 47.7 previously. It has not been above 50 since last August. Italy was the most surprising. The service PMI at 48.8 was well above expectations and the previous reading of 44.7. The composite moved above 50 (51.4) for the first time since last September. Spain saw modest improvement, but the composite of 45.1 points to an economy in contraction. For the euro area, as a while, the service PMI rose to 45.7 from 44.7 of the preliminary reading and 45.4 in January. The composite, which has not been above 50 since last October, is at 48.8 compared with 47.8 previously.  

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Read more by Marc on his site Marc to Market.

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