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USD Backtracks as PMIs Prompt EUR, GBP Recovery

FOREX
  • The USD is backtracking, making the the greenback weaker against all others in G10. Better European data helped aid the move among major pairs, with German and French manufacturing data faring well, despite services remaining weak. UK data was more well-grounded, helping the composite PMI edge to 52.5 vs. Exp. 52.1.
  • Stronger PMI data across Europe and the UK has contributed to the recovery in EUR/USD and GBP/USD, but GBP has outperformed, resulting in fresh YTD lows for EUR/GBP. The price action makes for five negative sessions in the past six and 0.8524 as the next downside target.
  • This drags spot away from the most sizeable strike in the cross for today's NY cut: E459mln rolling off at GBP0.8545. BoE pricing firmed slightly on the PMI print, with May meeting rate cut pricing pared back to ~12bps and reducing the odds of a 25bps cut to below 50%.
  • SEK and EUR proxies more broadly are faring well, keeping SEK toward the top end of the G10 pile. In a partial reversal of yesterday's price action, the USD is the weakest headed through to the NY crossover.
  • The Bank of Canada rate decision takes focus going forward. While markets expect little change in headline policy (rates seen unchanged at 5.00%) with greater focus on the statement’s tone and macro forecasts before Macklem’s press conference. Prelim US PMI stats is sole US release of note, with speech schedules remaining quiet as the ECB and Fed remain inside the pre-rate decision media quiet period.
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