SINGAPORE, SINGAPORE--(Marketwired - Sep 3, 2013) - In FXPRIMUS' Market Brief of The Week for 2 September, the brokerage firm's Senior Economist, Jimmy Zhu, looks at improving Euro Zone and China economic data, while the safe haven Dollar nearly outperformed all other currencies except the Yen.

Economic Insights

Improving global economic condition fails to appreciate currencies against Greenback

Data from the Euro Zone and China continued improving last week, with the Chinese Official Purchasing Managers' Index (PMI) climbing to a year-high, and the confidence index in the Euro Zone resuming its rally. However, the Dollar failed to edge lower last week despite exciting economic data from other regions.

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It clearly indicated that movement of various currencies last week did not really reflect their respective fundamentals. In his speech last Wednesday, Bank of England (BoE) Governor Mark Carney signaled that stimulus and easing bias would last longer. However, the Sterling started to rebound last week. The Aussie and Kiwi are underwater despite improving economic and financial conditions in China.

The currency market also tended to have a different opinion on the tapering decision. In the fixed-income market, I noticed that the U.S. Treasuries yield curve is less steep compared to a week ago. Hence, there might be other reasons lifting the value of the Greenback, while the Dollar nearly outperformed all other currencies except the Yen.

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The turbulence in Syria could be the main reason bolstering the Greenback when the currency still has safe haven status. The conflict also pushed the crude price higher and equities lower last week, when U.S. President Barack Obama did not rule out military action against Syria. However, Asian stocks traded higher today when prospects of an imminent strike on Syria faded. The President is expected to delay action before Congress approves the deal.

Minimal impact from Reserve Bank of Australia (RBA) and European Central Bank (ECB) meetings this week

The RBA and ECB will meet this week as usual, but I expect any impact will be very minimal. I would rather pay more attention to the Australian 2Q Gross Domestic Product (GDP) releases this week.

The RBA is expected to keep the cash rate unchanged at 2.5% tomorrow. They gave enough hints they would do that to avoid back-to-back rate cuts, when the bond premium shrunk substantially against U.S. Treasuries. Thus, the RBA's effort to lower corporate borrowing costs was delivered on a best-effort base, and no immediate action should be taken at this point.