UK PMI Surprises Markets, Bolstering Pound Against Euro and Dollar

Economic

Summary:

In conclusion, the upbeat PMI data has provided a boost to the Pound, but uncertainties around inflation and the Bank of England's stance add layers of complexity to the currency's outlook.

The British Pound experienced a notable upswing against major currencies, including the Euro and Dollar, following the release of the UK's Purchasing Managers' Index (PMI) survey for November. The services PMI surpassed expectations, rising from 49.5 to 50.5, signaling growth in the country's largest sector. The manufacturing PMI also exceeded consensus estimates, contributing to an overall positive composite PMI of 50.1. Despite concerns about inflation, the Bank of England's discomfort over market expectations for rate cuts, and rising staff costs, the upbeat PMI data has reinforced a 'higher for longer' interest rate narrative, supporting UK bond yields and limiting downside for the Pound. Improved business activity expectations and a decline in disruption caused by strikes add to the positive outlook.

In a surprising turn of events, the UK's Purchasing Managers' Index (PMI) survey for November has injected fresh momentum into the British Pound, driving it higher against key currencies such as the Euro and Dollar.

Robust Services PMI Growth:

The standout performer was the services PMI, which defied expectations by rising from 49.5 to 50.5. Economists had anticipated no change, making this unexpected uptick a significant driver for the Pound's upward trajectory. The return to growth in the UK's largest sector bodes well for the overall economic outlook.

UK PMI Surprises Markets, Bolstering Pound Against Euro and Dollar_1

Manufacturing PMI Exceeds Consensus:

Adding to the positive sentiment, the manufacturing PMI climbed to 46.7 from 44.8, surpassing consensus estimates set at 45. The unexpected strength in manufacturing further fueled optimism about the resilience of the UK economy.

UK PMI Surprises Markets, Bolstering Pound Against Euro and Dollar_2

Composite PMI Beats Expectations:

The composite PMI, providing a comprehensive view of the broader economy, outperformed with a reading of 50.1, up from 48.7. This beat the consensus estimate of 48.7, indicating a solid upside surprise in this closely watched monthly data series.

UK PMI Surprises Markets, Bolstering Pound Against Euro and Dollar_3

UK PMI Surprises Markets, Bolstering Pound Against Euro and Dollar_4

The market response was swift, with the Pound registering gains. The Pound to Euro exchange rate saw a notable gap higher from 1.1465 to 1.1495, while the Pound to Dollar exchange rate rose by 0.30% in the immediate aftermath, reaching 1.2544.

Inflation Concerns and Bank of England's Dilemma:

Despite the positive economic data, concerns linger about inflation, leading to a cautious stance by the Bank of England (BoE). S&P Global, conducting the survey, highlighted renewed signs of sticky inflation in November, with input costs and average prices charged increasing at a faster pace than in October.

The BoE's unease has been evident in recent weeks as markets adjusted expectations, 'pricing out' further rate hikes and anticipating potential rate cuts. The survey's findings on rising staff costs adding to service providers' average charges are likely to heighten the central bank's worries.

Positive Business Activity Expectations:

Amid these challenges, the Pound finds support from improved business activity expectations for the year ahead. S&P Global reported an increase in optimism, bouncing back from October's ten-month low. Additionally, total new work decreased at the slowest pace since July.

Outlook for UK GDP Growth:

Despite concerns, the survey's findings indicate a positive outlook for the UK economy. The expectation of quarter-on-quarter growth in

UK GDP for Q4 is bolstered by a recovery in public sector output, not covered by the PMI, due to reduced disruption caused by strikes.

In conclusion, the upbeat PMI data has provided a boost to the Pound, but uncertainties around inflation and the Bank of England's stance add layers of complexity to the currency's outlook. As markets digest the mixed signals, the Pound's resilience in the face of challenges remains a focal point for traders and investors.

To stay updated on all economic events of today, please check out our Economic calendar

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ING

Forex

USD: Half-day trading

US markets reopen today after the Thanksgiving holiday, but only for a half-day session. Expect volumes to be very thin again. On the data side, we'll see the release of US S&P PMIs, a piece of data that has triggered a growing market impact, but may fail to decisively steer the dollar in a low-volume day.

As we had expected, the dollar is stabilising amid reduced Thanksgiving flows, and an attempt to rally from the euro and sterling following somewhat encouraging PMIs didn't last much longer.

The quieter US calendar has seen market focus being re-directed, namely on oil market developments, a ceasefire in the Israel-Hamas conflict and Chinese real estate news. On the former, the decision by OPEC+ to delay its meeting scheduled for this weekend due to disagreement on output cuts took a brief hit on crude earlier this week. Our commodities team notes that the ongoing disagreement between members will likely increase volatility within the market over the course of the next week, although it is unclear how this will affect broader policy.

In China, we saw an unprecedented policy discussion by the central government to support the real estate sector, as it reportedly planning to allow banks to issue unsecured short-term loans to qualified developers. We would be cautious to think that this will spur a round of optimistic buying on Chinese assets. While it is a positive development on paper, it does signal a very concerned mood in Beijing about the developers' crisis.

It should be a relatively quiet day in FX today. We expect the dollar to keep stabilising around current levels. The next two weeks will set the tone for FX markets into Christmas, with key data (like payrolls) published in the US.

EUR: Dealing with slightly better PMIs

Yesterday's PMIs suggested the worst in the eurozone's economic sentiment may be past us. The composite gauge rebounded more than expected despite both manufacturing and services indicators remaining in contractionary territory.

The IFO release in Germany this morning will offer a deeper insight into the eurozone's largest economy. Consensus is also for a more optimistic reading than last month, with the business climate index seen rising from 86.9 to 87.5, the current assessment from the index from 89.2 to 89.5, and the expectations gauge jumping from 84.7 to 85.8. On the European Central Bank (ECB) side, we'll hear from ECB President Christine Lagarde this morning.

The notion that recessionary pessimism may have peaked in the eurozone is a positive for EUR/USD, but whether this can offer support to the pair already in the near term is a different question. Despite having modestly tightened, the 2-year EUR-USD swap rate differential is at -155bp. The last time it was trading around these levels, EUR/USD was in the 1.03/1.04 area. We keep favouring a stabilisation around 1.0900 for now.

Elsewhere in Europe, we'll monitor the weekly release of the Riksbank FX sales data this morning. The Bank is currently on track to finish purchases in four months, according to our calculations. Yesterday, Swedish policymakers decided to hold rates.

GBP: More downside room for EUR/GBP

EUR/GBP continues to press the 0.8700 support after what has been a very eventful week in the UK. The tax cuts announced by the Treasury are, on paper, a sterling-positive. They are both pro-growth and pro-inflation and do not seem to have excessively unnerved the bond market – especially when compared to those announced previously under former prime minister Liz Truss.

PMIs also came in stronger than expected yesterday, with the services and composite indices moving back above the 50.0 mark. Markets have priced out around 20bp of cuts in the September 2024 contract in the past week. We expect GBP to keep its decent momentum, especially in EUR/GBP, which we expect to make a decisive break below 0.8700 in the coming days. We are still expecting some USD resilience and see a capped upside for Cable.

CEE: Possible improvement in the rating outlook for the Czech Republic

Today, the calendar in the region is again basically empty. This morning we will see consumer confidence in the Czech Republic, which rebounded in October, but so far, we don't see an improving trend. Moody's will publish a rating review of the Czech Republic after the close of trading. The agency has held a negative outlook for the Aa3 rating since last August. We see some chance here for an improvement in the outlook to move towards greater stability. The main reason for the downgrade was the country's dependence on energy from Russia and the deteriorating fiscal outlook. Both issues have been resolved this year, and we thus think that an improvement in the outlook is a matter of time.

In the FX market, yesterday's news of possible EU money for Hungary was greeted by a strengthening HUF. While yesterday's news involves a different part of the EU money than was mostly mentioned in the context of the conflict over the rule of law, it is good news for Hungary. As we mentioned after the National Bank of Hungary (NBH) meeting this week, for new FX gains, we need to see some new triggers, such as the EU money progress. We therefore think yesterday may unlock the next wave of HUF appreciation. Market rates have stabilised, and we might even see some upside after a long string of declines. EUR/HUF has thus probably consolidated slightly above 380 and fell below that level yesterday. Looking ahead, 378 EUR/HUF should not be too ambitious a target if EUR/USD stays at high levels today.

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Economic

Central Bank

Bond

Feeble ECB pushback amid a broader sense of improving inflation

Markets are still pricing more than three 25bp cuts over the next year, and more than a 50% chance discounted that the first cut will already come in April. By June, it is already fully priced. We have had pushback over the past few days from European Central Bank (ECB) officials, but aggressive pricing shows it has had limited effect. The hawks were signalling again that hikes are not off the table. More centrist members seemed to downplay these chances but still stressed persistence. Francois Villeroy, for instance, stated that rates should plateau for the next few quarters. More interesting were discussions surrounding ending PEPP reinvestments sooner picking up again.

The minutes of the October ECB meeting confirmed the messaging around the key rate – that hikes are not entirely off the table. But the reality is also that the "disinflation process was proceeding somewhat faster than expected", while the ECB is not as optimistic about the macro backdrop anymore.

Amid all the central bank messaging, we should also note that financial conditions remain relatively tight, at least when measured by real interest rates. The 2Y real OIS is just 10bp shy of this cycle's highest levels. At the longer end, the 10Y is well off the September spike but still higher than any time before that. This is thanks to the market inflation expectations component having come down notably from its highs over the past two months. Overall, it might lessen the need for officials to push back more aggressively, although some would point out the often-cited fragility of inflation expectations.

Yesterday's flash PMIs remained in contractionary territory but notched up a bit and signalled that the downturn is not worsening. For market interest rates yesterday, that was enough to start turning somewhat higher again.

German budget woes highlight downside risks across the supply and macro outlook

As we head into the final months and weeks of the year, bond supply prospects move into focus. But this time around, there is increasing uncertainty surrounding the outlook for issuance of German Bunds after the constitutional court derailed the government's budget plans.

The downside risks are obvious, but we still have to get a clearer picture of what the ultimate impact is – not just in terms of supply but also for fiscal stance and the macro outlook as a whole. The political fallout is brewing, too. Members of the Free Democratic Party (FDP), which currently holds the finance ministry within the government coalition, have successfully petitioned to get a vote on whether to leave the coalition. The outcome would be non-binding for party leadership, though.

Yesterday, the finance minister announced that he wants parliament to retroactively declare an "emergency situation" for the current year, which would also allow for a suspension of the debt brake for the 2023 budget. This prospect gave Bund yields an uplift and retightened the Bund asset swap spread. But this plan is largely an after-the-fact legitimisation of 2023 borrowing given few other viable options and does not mean more debt issuance. The more relevant announcement of the 2024 budget has been postponed.

Today's events and market view

Left to their own US Thanksgiving holidays, 10Y Bund yields climbed over 2.6%, again steepening the curve in the process. Today's calendar mainly features the German Ifo index – seen improving slightly – and public appearances from ECB President Christine Lagarde, Vice President Luis de Guindos and Spain's Pablo Hernández de Cos.

US markets will see an early close today, but we will have data releases from the US in the form of the S&P flash PMIs for November. Both services and manufacturing were just above the 50 threshold that demarks contractionary territory.

Looking into next week, the inflation outlook, which has helped drive the rally, will likely remain the main focus. The eurozone flash CPI could show inflation easing further, with the core rate likely getting into the 3% handle – even if only barely. The easing trend of inflation should also be confirmed in the US by the PCE data, the Fed's preferred inflation measure.

To stay updated on all economic events of today, please check out our Economic calendar

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Damon

Forex

The latest nationwide Japan core inflation for October (excluding fresh food) ticked higher for the first time in four months to 2.9% y/y (slightly below the consensus of 3% y/y) from September's 13-month low of 2.8% y/y. Overall, it has stayed above the Bank of Japan (BoJ)'s 2% inflation target for the consecutive 19th month.

Meanwhile, the core-core inflation rate (excluding fresh food & energy) inched lower to 4% y/y (but still its highest level since 1981) in October from September 4.2% y/y, the second consecutive month of softness which indicates that the recent rallies seen in benchmark oil prices from August to September were likely one of the main drivers that contribute to the resurgence of inflationary pressures in October.

Economic activities in the services sector have started to improve slightly in November where the flash Services PMI rose to 51.7 from 51.6 in October but still below its 12-month average of around 53.5.

In contrast, manufacturing activities have continued to be in the doldrums as the flash Manufacturing PMI for November contracted further to 48.1 from 48.7 in October, its sixth consecutive month of contraction and its steepest decline since February 2023.

Potential mounting political pressure on BoJ due to higher imported inflationary pressures

Overall, it's a mixed set of economic readings but the recent months of elevated imported inflation via the lagged effects of higher oil prices that drove up import costs have put Bank of Japan Governor Ueda in a tight spot as he has so far "stubbornly" remained dovish on Japan's monetary policy and adopted a wait & see approach for further evidence on substantial wage increases before embarking on a path of normalization away from negative short-term interest rates.

The current dovish stance from BoJ has led the JPY to plummet to a 33-year low against the US dollar and is the current primary driver of higher import costs, in turn, putting increasing political pressure on BoJ to act fast to negate this knock-on effect on elevated import costs in order to boost consumer and business sentiment as Japanese Prime Minster Kishida's most recent approval ratings declined to the lowest level in his current two-year premiership.

The USD/JPY has staged a rebound of +260 pips since the start of this week after it plummeted to a 10-week low print of 147.15 on Tuesday, 21 November in line with broad-based US dollar weakness seen last week.

The recent rebound is likely due to technical factors as the prior steep decline from its 151.95 major resistance has hit oversold conditions on several short-term (hourly) momentum indicators.

Further shrinkage in the 10-year US Treasury-JGB yield premium may trigger further downside pressure in USD/JPY

Fig 1: JGB yields with US Treasury-JGB yield spreads as of 24 Nov 2023 (Source: TradingView, click to enlarge chart)

The current elevated inflationary pressure in Japan has reinforced a further uptick in the 10-year Japanese government bond (JGB) yield that continued to rise to 0.77% at this time of the writing from an 11-week low of 0.69% printed on Tuesday, 21 November.

Hence, the latest recovery seen in n the 10-year JGB yield is likely to put downside pressure on the declining 10-year US Treasury-JGB yield premium since 19 October 2023 which in turn may undermine the recent 3-day US dollar rebound against the JPY.

Short-term minor corrective rebound in USD/JPY may have reached its terminal point

Fig 2: USD/JPY medium-term trend as of 24 Nov 2023 (Source: TradingView, click to enlarge chart)

Fig 3: USD/JPY minor short-term trend as of 24 Nov 2023 (Source: TradingView, click to enlarge chart)

Technically speaking, the +260 pips rebound seen in the USD/JPY from its 21 November 2023 low of 147.15 has started to show bullish exhaustion signals at its 20 and 50-day moving averages.

The short-term hourly RSI oscillator has continued to exhibit bearish momentum readings after an earlier bearish divergence condition being flashed out at its overbought zone on Wednesday, 22 November.

Watch the 150.20 key short-term pivotal resistance (also the 20-day moving average & close to the 61.8% Fibonacci retracement of the prior minor decline from 13 November 2023 high to 21 November 2023 low) and a break below the near-term support of 148.40 may expose the next intermediate supports of 147.30 and 146.60/20.

However, a clearance above 150.20 invalidates the bearish tone for a squeeze up towards the next intermediate resistance at 151.40 (minor swing high of 16 November 2023).

Source: MarketPulse

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Economic

October industrial production up 7.4%

Singapore's string of positive data continues, this time with industrial production beating market consensus to rise 7.4% YoY. Market expectations tipped production to slow for a 13th straight month. Compared to the previous month, industrial production jumped 9.8%, much better than expectations for a 0.4% contraction.

Electronics picked up to 14.8% YoY, from 12.7% in the previous month. Biomedical and general manufacturing rose 5.1% YoY and 4.3% YoY, respectively. Chemicals remained in contraction (1.0% YoY) but at a less pronounced pace compared than the 13.0% YoY drop of the previous month.

Better IP data today a sign of things to come?

Industrial production had been mired in an extended slump (13 months), tracking the struggles of the export sector. With global demand relatively subdued of late, soft non-oil domestic oil (NODX )orders filtered through to the industrial output numbers.

The improvement in the October NODX report signaled a potential recovery for the industrial sector and we could see this sector string together a decent streak of expansion now that global demand appears to be showing signs of a potential recovery.

Today's industrial production report should contribute well to 4Q GDP numbers which will continue to get a boost from leisure related services. 2023 full year GDP growth of 1% YoY is well within reach.

To stay updated on all economic events of today, please check out our Economic calendar

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Samantha Luan

Economic

Central Bank

Forex

Trading activity is rather subdued in Asian session today, with most major currency pairs and crosses hovering within yesterday's range.

Yen is showing a slight recovery, albeit in the context of mixed inflation and PMI data. While Japan's core CPI remains persistently above BoJ's target, the latest figures haven't provided a strong impetus for the central bank to shift away from its negative interest rate policy or to alter its yield curve control strategy. BoJ officials have emphasized the importance of a sustainable wage-price spiral, and they are likely to await the results of wage negotiations early next year before making significant policy decisions.

Throughout the week, New Zealand Dollar has emerged as the strongest currency, additionally supported by much better-than-expected retail sales data released today. Australian Dollar and British Pound Sterling are following as the second and third strongest.

On the other end of the spectrum, Euro is the weakest, closely followed by Dollar. However, it's worth noting that Euro's current position appears to be more about consolidating recent gains against Dollar, and EUR/USD maintains near-term bullish outlook. A reversal in Euro and Dollar's positions could occur once this consolidation phase concludes.

Yen, currently positioned as the third weakest, is in a phase of digesting its gains from the previous week. However, there is potential for Yen to ascend in the rankings before the week concludes. Canadian Dollar and Swiss Franc are displaying mixed performances.

From technical analysis standpoint, USD/JPY's recovery from 147.14 is so far still capped by 55 4H EMA. Fall from 151.89 is still in favor to continue, and break of 148.57 minor support will bring retest of 147.14 support first. However, sustained trading above the EMA will retain near term bullishness, and bring a test on 151.89 high. Market watchers will be looking to see if this scenario plays out this week or in the next. Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_1

Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_1

In Asia, Nikkei closed up 0.55%. Hong Kong HSI is down -1.48%. China Shanghai SSE is down -0.63%. Singapore Strait Times is down -0.52%. Japan 10-year JGB yield is up 0.0431 at 0.774.

BoE's Pill stresses persistence in inflation fight

In a Financial Times interview, BoE Chief Economist Huw Pill emphasized the need for the MPC to avoid prematurely "declaring victory" in the fight against inflation, noting that CPI is still considerably above BoE's 2% target, currently at 4.6%.

Pill acknowledged UK's economic slowdown, noting "slower growth in activity and employment." However, he assessed that the current inflation scenario is "more supply-driven rather than demand-driven." Weakening in economic activity is not necessarily leading to a reduction in inflationary pressures, as might typically be expected.

Analyzing recent economic indicators, Pill observed more evidence of "sort of stubborn, high-level rates of inflation" and and growth that are "stronger" than being compatible with 2% inflation over the medium term.

He also argued that if the slowdown in economic activities and employment growth is linked to a decline in the economy's supply performance, rather than a drop in demand, it wouldn't create the necessary slack to ease domestically generated inflation.

Japan's CPI core rises to 2.9%, above BoJ target for 19th mth, services prices surge

Japan's core CPI, which excludes fresh food prices, rose slightly from 2.8% yoy to 2.9% yoy in October, falling just below expected 3.0% yoy. Notably, this core CPI has stayed above BoJ's target of 2% for the 19th consecutive month, indicating persistent inflationary pressures.

Headline CPI, which includes all items, accelerated from 3.0% yoy to 3.3% yoy. However, core-core CPI, which excludes both food and energy, showed a slight deceleration, dropping from 4.2% yoy to 4.0% yoy. Despite this decrease, core-core CPI has remained above 4.0% for seven consecutive months, highlighting sustained inflation in areas beyond just the volatile items.

Breaking down the details, energy prices saw a significant decrease of -8.5% yoy. In contrast, food prices continued to climb, recording a 7.6% yoy increase. Durable goods also experienced a price rise of 3.2% yoy. Notably, services prices surged by 2.1% yoy, marking the fastest gain since 1993. This sharp increase in services prices underscores the broadening of inflationary pressures within the Japanese economy.

Japan's PMIs: Manufacturing contracts, services slightly improve

Japan's PMI for November shows a continuing contraction in the manufacturing sector and a slight improvement in services.

Manufacturing PMI dropped from 48.7 to 48.1, falling below the expected 48.8 and marking another month below the crucial 50.0 threshold, which separates contraction from expansion. This ongoing contraction has been the trend since June.

Conversely, Services PMI saw a marginal increase, moving up from 51.6 to 51.7, indicating a slight expansion in this sector. However, Composite PMI, which combines both manufacturing and services, edged down from 50.5 to exactly 50.0, highlighting stagnation in overall private sector activity.

Usamah Bhatti, an economist at S&P Global Market Intelligenc said: "Activity at Japanese private sector firms stagnated midway through the fourth quarter of 2023." This stagnation is further reflected in the demand conditions, which Bhatti noted remained "muted in November and were little-changed from October."

New Zealand retail sales volume flat in Q3, value up 1.5% qoq

In New Zealand, Q3 2023 saw retail sales volumes remain unchanged at 0.0% qoq, defying expectations of a -0.8% decline.

However, a contrasting trend emerged in the sales value, which increased by 1.5% qoq, indicating a disparity between the number of goods sold and their monetary value.

On an annual basis, there was a -3.4% yoy decrease in sales volume, whereas sales value saw 1.1% yoy increase.

These divergences should be reflective of inflationary pressures and corresponding shift in consumer purchasing patterns.

Looking ahead

Germany Q3 GDP final and Ifo business climate will be released in European session. Later in the day, Canada retail sales and US PMIs will be featured.

EUR/JPY Daily Outlook

With 162.08 minor support intact, EUR/JPY's rebound from 161.22 could extend further to retest 164.29 high. Firm break there will resume larger up trend. On the downside, however, break of 162.08 will turn bias back to the downside, to resume the fall from 164.29 through 161.22 towards 159.75 resistance turned support. Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_2

Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_2

In the bigger picture, rise from 114.42 (2020 low) is in progress. Next target is 169.96 (2008 high). On the downside, break of 159.75 resistance turned support is needed to be the first sign of medium-term topping. Otherwise, outlook will remain bullish even in case of deep pullback. Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_3

Yen Sees Mild Uptick Following Mixed CPI and PMIs, A Signal for Buyers' Return?_3

Source: ActionForex

To stay updated on all economic events of today, please check out our Economic calendar

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SAXO

Forex

JPY: More room for weakness

Japan's October inflation was reported this morning, and showed a re-acceleration after three consecutive months of softening. Headline CPI was at 3.3% YoY, higher than last month's 3.0% and core also accelerated to 2.9% YoY from 2.8%, although it was below the expected 3.0%. Core-core measure however showed some signs of cooling but remained high at 4.0% YoY (vs. exp. 4.1% and prev. 4.2%). This continues to question whether inflation is really transitory as Bank of Japan has been saying, given headline inflation has been above the BOJ's 2% target since April 2022. Japan Inflation Rebound Unlikely to Deter Bank of Japan_1

Japan Inflation Rebound Unlikely to Deter Bank of Japan_1

While this could spook BOJ pivot bets, JPY hardly reacted to the release. One, there is still an element of one-off drivers in inflation. Much of the acceleration in October was driven by reduction in government subsidies that lifted utility bills, or higher hotel costs as inbound tourism accelerated. Higher import prices due to sustained yen weakness also continued to underpin. However, with the higher cost of living taking a toll on consumer spending, BOJ is unlikely to be convinced that inflation has become entrenched. As such, focus will remain on spring wage negotiations as that could be the only catalyst to prompt any BOJ tweaks next year, even if it remained minor.

That means yen will remain a play of Treasury yields for now, and US PMIs today but more importantly the PCE data next week will be key to watch. USD/JPY has reversed back higher to 149.50 from lows of 147.15 this week. Pair could test 150 or higher as that level has been cleared for BOJ intervention risks earlier in October, while 152 could serve as an intervention risk threshold. Saxo's trade signals also identify 151.86 as a key resistance. Germany's suspension of debt limit serves as a reminder of fiscal dominance and could spark a sell-off in global bonds, which suggests near-term downside for yen. But valuation and positioning suggest a significant room for yen appreciation into 2024. If US PMIs indicate a moderation, USD/JPY could reverse back towards 149.

Market Takeaway: USD/JPY could rise towards 151+ before intervention risks come in play. A drop below 149 is needed to bring bearish trend back in focus.

EUR, GBP: Fiscal dominance back in focus

Eurozone and UK PMIs conveyed a sense of stability and recovery, more pronounced in UK than Eurozone. UK services and composite PMI jumped up to expansion territory of above-50 and manufacturing also improved to 46.7 from 44.8. Eurozone PMIs however remained below 50, although both manufacturing and services showed an improvement. EURUSD came under some pressure on the release, but is sticking to the 1.09 handle for now. GBP/USD rose to highs of 1.2564 before settling in the 1.2540-area. That saw EUR/GBP pushing below 0.87 handle, although the break doesn't look convincing for now and support level of 0.8647 will be on watch.

Japan Inflation Rebound Unlikely to Deter Bank of Japan_2

Fiscal concerns were also back in focus with Germany's suspension of debt limits for a fourth consecutive year raising concerns of additional borrowing and increasing bond supply, which pushed yields higher. Germany Q3 GDP and IFO survey will be on watch today.

Market Takeaway: EUR/GBP could bounce back higher with a series of supports piling below 0.87.

SEK: Riksbank pause a sign of peak rates

The Riksbank left the policy rate unchanged at 4%, but continued to signal peak rate of 4.10% in the beginning of 2024. The press statement says that the board is "is prepared to raise it further if prospects for inflation deteriorate". However, the decision was unanimous, and inflation is seen to be declining inti 2024, indicating that the peak rate may have been reached. The board also indicated an openness to increase the size of the QT programme at its next meeting in January (announcement due Feb 1).

Market Takeaway: EUR/SEK rose higher to 11.44 from a low of 11.35 and the decision may leave SEK more prone to profit taking. Key levels to watch are 11.50 and 11.85.

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