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    European Session – Euro and sterling rally, oil shows renewed weakness

    PMI data for various countries were released today but had little impact on currencies as the broader fundamentals were the main market drivers. Risk appetite was off as focus was on China’s slowing economy after the nation’s official manufacturing PMI index fell to 49.4 in January from 49.7 in December, being stuck below 50 for the sixth month in-a-row. The figure was below estimates of 49.6.

    Eurozone final manufacturing PMI for January came in as expected at 52.3, showing no change from the flash reading. In the UK, the January manufacturing PMI came in at 52.9 and was stronger than the expected 51.7. It was 52.1 in December.

    Out of the US, the ISM manufacturing PMI continued to remain under 50 in contraction territory for the month of January for a fourth consecutive month. The only bright spot was that manufacturing activity contracted at a slower pace than the previous month as the index rose to 48.2 in January from December’s 48.0. This was above a Reuter’s forecast of 48.1.

    Currencies showed little reaction to the PMI data. The dollar was mostly flat against the Japanese currency just above 121 yen before falling to 120.70. Both the euro and the pound shrugged off the PMI data and rose against the dollar. The euro briefly tested the key $1.09 level while sterling rallied from sub-$1.43 to hit a session high of $1.4376.

    Today’s PMI data have taken on less importance as central banks are more in focus. Markets are expecting the ECB to add more stimulus at the March meeting. As for the pound, gains will likely be capped ahead of Thursday’s Bank of England meeting and the release of its Quarterly Inflation Report.

    Meanwhile, ECB President Mario Draghi will attract market attention later today as he addresses European lawmakers. Investors will look to see if he may provide further hints of more policy easing to come.

    The Australian dollar was stable against the greenback at around $0.7070. The main risk for the aussie will be the upcoming Reserve Bank of Australia policy meeting early on Tuesday.

    In commodities, oil prices were back down today after rising four straight days last week. Prices fell below $33. Gold on the other hand rose today due to safe haven demand, to reach a three-month high of $1128.69.

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