The yen outperformed on safe haven flows, pressuring the dollar/yen pair to a new 2 ½ month low of 118.24. This is the lowest level since October 15. The risk off mood was set early in the day by weaker China Caixin services PMI and geopolitical risk on news that North Korea tested a hydrogen bomb.
Services PMI dominated the news today, with the Euro zone, the UK and the US all publishing their numbers for December.
The euro continued to trade in the $1.07 handle against the dollar but was mostly range bound throughout the day. Better Eurozone PMI data had little impact on the currency though as the market focus was on China. The final December number for services PMI for the whole euro area was better than the flash estimate, coming in a 54.2 rather than 53.9. Meanwhile, the composite PMI reading also improved to 54.3 from 54.0.
On the other hand, the UK services PMI disappointed, causing the pound to fall to a fresh nine-month low against the dollar at $1.4599. The December figure dipped to 55.5 from 55.9, slightly below expectations for a reading of 55.6. Meanwhile, the composite reading, which had improved in October and November, fell back to 55.3, the lowest reading for the quarter.
The closely watched US ISM non-manufacturing gauge came in at 55.3 in December from 53.7 the prior month, missing estimates for an increase to 56. The dollar weakened slightly against the yen after the data but held near the highs of the session after being boosted by more upbeat ADP jobs data released earlier. US employers added 257,000 jobs in December, beating a forecast for a reading of 198,000. Focus now shifts to the more important nonfarm payrolls report to be released on Friday, with a prediction of 200,000 jobs created in December.
In commodities news, Brent crude oil broke below the key $35 a barrel level to a fresh 11-year low of $34.79. The oil-linked Canadian dollar was affected and fell to its weakest in eleven years as USDCAD rose to $1.4107.
Later in the US session, the FOMC minutes will attract attention. These are minutes of the December Fed meeting, when the US central bank increased interest rates for the first time in a decade. Investors will look for clues on the timing of the second rate hike.
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