Friday might turn out to be the most important days for the market. Not because there necessarily will be a large move in forex pairs, but because Flash PMIs could help set the tone for the final round of rate decisions of the year. That could set the trend for the next couple of months through the holidays.
Forex markets in particular are navigating in a bit of uncertain time at the moment. Inflation in many countries is on the cusp of returning to target or potentially bouncing off. A few major economies are teetering on slowdowns. And into the mix is the potential of a trade war, with uncertainty lingering about how aggressive the new Trump administration will be on tariffs.
Holding Off On the Data
That uncertainty could be providing some additional support for the dollar in the current environment. Many markets appear to be entering a holding pattern after the initial reaction in November. After both the ECB and the Fed heavily implied that there is increased uncertainty in the coming months, markets are now turning to key data points for guidance.
The relative evolution of the economies will be key to determine which will likely have higher interest rates compared to others. Which will define the trajectory of the respective currency pairs. PMI figures are a leading indicator of economic performance, and investors will likely be looking at them closely to get some advance notice of what central banks might do in December. Friday’s Flash PMIs could trigger changes in the outlook if they deviate substantially from expectations.
What to Look Out For
Japanese Flash November manufacturing PMI is expected to come in at 49.7, a slight improvement over the 49.2 prior. Meanwhile, services PMI is forecast to return to expansion at 50.1 compared to 49.7 prior. Japan’s slowing economy is seen as an obstacle for the BOJ to concretely step in and prevent the yen from falling further.
German Flash November manufacturing PMI is expected to remain solidly in contraction though have a minor improvement to 43.5 from 43.0 prior. The persistently active services sector has been cited as a reason for why inflation might endure. Germany services PMI is expected to remain in expansion unchanged at 51.6. Euro Area manufacturing PMI is forecast to stay in contraction at 46.2, in line with the 46.0 prior, with services improving slightly to 52.0 from 51.6. The Euro has been trending lower on expectations that the ECB will be cutting aggressively as the shared economy struggles. A recovery in manufacturing in Europe, or a persistently high services PMI could keep the ECB from cutting as fast as expected. That would likely boost the Euro.
UK Flash November manufacturing PMI is expected to also be essentially unchanged and stay in contraction by the bare minimum at 49.8 compared to 49.9. Services are also seen largely flat at 52.0 compared to 51.8 prior. The pound had maintained strength, but a slowing economy could revise market expectations for rate cuts. If UK services PMI stays in contraction, then investors could start pricing in more rate cuts from the BOE.
After strong Empire manufacturing data last Friday, markets are likely to focus more on the composite reading for US PMIs. The manufacturing component is expected to remain modestly in contraction, but services dominate the US economy. US November composite PMI is seen well in expansion at 54.3, practically unchanged from the 54.1 prior.
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