Market Summary The US dollar is starting the week on the defensive, a ‘payback’ for the greenback’s recent strength and a reflection of a slightly more optimistic tone in global equity markets. Some easing in concerns over the fiscal troubles in Eurozone is helping the euro, although with more budget news expected from Greece in mid-week we suspect this is a temporary reprieve. Stronger than expected manufacturing PMI data in the European region is also helping regional currencies and in particular the Swedish krona which is the top performer among the majors today. It’s another busy week ahead for market events including the US January non-farm payrolls report and policy meetings by the ECB, the Bank of England and the Reserve Bank of Australia. While we see little on the immediate horizon to cause a sharp turnaround in the dollar’s strengthening trend, from the technical perspective the dollar is also approaching some near-term targets, suggesting further greenback gains could be tougher going. . Regional Highlights Asia/Pacific While regional markets remain sensitive to the latest economic readings from China, today’s data has only had a modest impact on FX price action. China’s official estimate for the January manufacturing PMI slipped to 55.8, although the private sector estimate improved from 56.1 to 57.4. The Australian dollar up slightly today, while the New Zealand dollar is also slightly higher after the central bank governor said “meaty” interest rate increases may be needed if inflation risks emerge. There was little on the economic calendar to inspire market moves: Australian house prices rose by 13.6% y/y in Q4, while New Zealand commodity prices rose by 0.4% m/m in January. In the emerging Asian space, growth in consumer prices accelerated to 3.72% y/y in Indonesia, the fastest pace in seven months. The rupiah is lower against the buck however, along with most other regional emerging currencies. Europe The euro is higher today amid more positive equity markets as concerns over regional budget woes are temporarily easing. On the data front, the calendar is dominated by January manufacturing survey data and the news is encouraging. The final estimate of the Eurozone manufacturing PMI was revised higher to 52.4, the UK PMI rose to 56.7, the Swiss manufacturing PMI climbed to 56 and the Swedish manufacturing PMI jumped to 61.7. The latter number has given a sizeable boost to the Swedish krona, which is the best performing major currency today. On the downside, the British pound is struggling despite the positive PMI data. Meanwhile the Swiss franc is steady after what appeared to be a Swiss National Bank intervention to weaken the currency carried out late in the session on Friday. Regional emerging currencies are mostly up against the greenback led by the Polish zloty and the Czech koruna. Americas The US December personal income and spending report (largely old news after the already released Q4 GDP) showed personal spending rising by 0.2% m/m, while core PCE prices remained subdued at 1.5% y/y. The key release today is the January manufacturing ISM where economists expect a small decline to 55.5. Elsewhere, Brazil’s January manufacturing PMI rose to 57.8, while the monthly trade balance registered a small $166 million deficit. The real and the Mexican peso are stronger, but the Chilean peso is weaker.

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