Talking Points
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Euro, British Pound May Rise on Last Round of August PMI Data
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US Dollar Looks to Beige Book Survey for Fed QE “Taper” Clues
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Aussie Dollar Outperforms as 2Q GDP Bolsters On-Hold RBA Bets
The revised Eurozone Composite PMI gauge is expected to confirm flash estimates putting manufacturing- and service-sector growth at the fastest in 26 months in August. Meanwhile, updated second-quarter Eurozone GDP numbers are due to underscore the region’s exit from recession in the three months through June with an output gain of 0.3 percent.The Euro continues to track the monetary policy outlook as implied by the spread in front-end bond yields. That means outcomes that top forecasts andlower the probability of further ECB easing are likely to buoy the single currency (and vice versa).
Separately, the UK Services PMI measure is expected to tick slightly lower to 59.7 in August after hitting 60.2 in the prior month to mark the highest reading in nearly 7 years. Sharp upside surprises on manufacturing and construction PMIs sent the British Pound sharply higher earlier this week however, leaving the door open for a similar result this time around. We continue to hold a short EURGBP position.
Later in the day, the spotlight shifts to the US data docket, where the Federal Reserve’s Beige Book survey of regional economic conditions is in focus. Markets will interpret the release in terms of its implications for continued speculation surrounding the central bank’s intent to begin “tapering” QE asset purchases. A soft tone is likely to be seen as limiting the scope for stimulus reduction beyond the widely expected September cutback and weigh on the US Dollaragainst most of its major counterparts. Signs of well-supported recovery stand to yield the opposite result.
The Australian Dollar continued to outperform for a second day overnight following the release of second-quarter GDP figures. Output expanded 0.6 percent from the prior quarter, a hair more than economists’ median forecast of a 0.5 percent gain. The first-quarter reading was revised slightly lower to 0.5 percent. On balance, this suggested that Australian economic performance fell broadly in line with consensus views in the first half of the year.
While this didn’t create the impetus for Aussie gains in and of itself, it removed an important bit of event risk holding back follow-through after yesterday’s RBA rate decision. The central bank’s rhetoric marked a notable shift away from an overtly dovish bias to a wait-and-see approach, sending the Australian unit higher as expected. We remain long AUDUSD.