Dollar Bounces To Start H2
The beleaguered US dollar is enjoying a respite from the selling pressure that pushed it lower against all the major currencies in the first six months of 2017. A measure of the dollar on a trade-weighted basis fell about 5% in the first half after appreciating nearly 8% in Q4 16.
Paradoxically, the dollar’s recovery today has not been sparked by a new fundamental development but seems to be a reflection of sentiment and a cautiousness about the proximity of key chart points. In fact, the economic data that has been reported today, which includes Caixin manufacturing PMI for China, Japan’s Tankan Survey and the eurozone’s manufacturing PMI all came in stronger than expected. The UK manufacturing PMI was an exception and as it fell more than expected. However, overall, the fact that the dollar is broadly higher suggests that the market may have already discounted the strengthening global macro picture.
For the record, China’s Caixin manufacturing PMI rose to 50.4 from 49.6. It is the strongest reading since March. Output rose to 50.6 from 50.2. The improvement seen in the official measure speaks to the larger businesses and exporters. The Caixin measure says that the economic strength is also being seen in the domestic economy among smaller businesses as well.
Japan’s Tankan Survey showed improvement across the board: large and small manufacturers and non-manufacturers. Of particular interest, capex plans jumped dramatically. Large businesses intend to boost capital spending by 8% after a 0.6% increase was planned in Q1. The median expected a 7.2% gain. Separately, the LDP was trounced in the Tokyo election. It may take a little time for the results to impact policy. A cabinet reshuffle and prospects for a supplemental budget, a typical response may be forthcoming. Finance Minister Aso is consolidating his power among LDP factions, and it is out of Aso’s faction that a rival to Abe may emerge.