US ISM Non Manufacturing PMI rose from 52.7 points to 53.3 points in August, above expectations, that stood on 51 points. This means that growth continues in America’s largest sector.
The dollar reacts with a small rise against the yen, but retreats against the beaten euro. This may reverse later on, as this lowers the chance of QE3.
Update: EUR/USD loses 1.40
Due to the significant slowdown and especially the stall in jobs reported in Friday’s Non-Farm Payrolls, there was fear that the services sector was entering economic contraction, raising the chances for fresh easing measures from the Federal Reserve.
The manufacturing sector managed to avoid contraction and held its head above the water in August, although it almost ground to a halt. This figure is the last important indicator towards the extended FOMC meeting on September 20th and 21st.
As the chances of QE3 are low in the current inflationary environment, there is a growing notion that the Fed will announce an “operation twist†– trying to lower the yields of long term bonds, while selling short term bonds. Long term yields are already very low, despite the historic credit rating downgrade for the US.
The euro has severe problems of its own, quite a lot. It seems well supported at 1.4030, at least for now. The initial reaction in the euro is of risk appetite – stronger US growth is better for everyone and therefore it increases the appetite for risky currencies such as the euro. This could reverse.
Earlier in the day, the Swiss move sent it to resistance at 1.4282, but this was short lived. It then fell to again, all the way to support at 1.4030. It is now moving up, but remaining below weak resistance at 1.41.
For more on EUR/USD, see the euro/dollar forecast.
The Swiss franc’s safe haven status was hit after the dramatic floor that the SNB set for EUR/CHF. GBP/USD joins the euro with limited risk appetite gains, at least for now.
