Dollar, sterling buoyed by upbeat PMI surveys; kiwi jumps on hawkish

By Rae Wee

SINGAPORE (Reuters) – The dollar and sterling found support on Wednesday after a surprise rebound in business activity in the United States and the UK raised the likelihood that their respective central banks would have further to go in raising interest rates.

Elsewhere, the euro attempted to recoup its losses from the previous session, even as the euro zone’s flash composite PMI climbed to a nine-month high of 52.3 in February, supported by surprisingly strong services growth.

Data released on Tuesday showed that U.S. business activity unexpectedly rebounded in February to reach its highest level in eight months, while the UK flash composite Purchasing Managers’ Index (PMI) similarly surged to 53.0 this month, above the 50 threshold for growth for the first time since July.

The dollar rose broadly while sterling last bought $1.21015, holding on to most of Tuesday’s 0.6% gains.

The euro rose 0.05% to $1.0652, after having fallen 0.36% in the previous session.

“It was kind of an issue of relativities in a sense, that while the services sectors performed better across the board, that extra lift that sterling got was because of that very, very strong performance,” said Rodrigo Catril, senior currency strategist at National Australia Bank (OTC:).

“I think the euro is still in a sort of more difficult situation, given that there’s a general sense that the ECB still has more work to do, and that puts a little bit of strain in terms of their growth outlook.”

Over in the antipodes, the was last 0.1% higher at $0.62195, after having risen to an intra-day high of $0.6248 earlier in the session following a hawkish rate hike from the Reserve Bank of New Zealand (RBNZ).

The RBNZ on Wednesday raised its cash rate by 50 basis points, as expected, and signalled further tightening as inflation in the economy remains too high.

“Upside pressures to inflation prevail, so unless the wheels fall off the economy soon, another 50bp hike seems likely at this stage,” said Matt Simpson, senior market analyst at City Index.

“But its timing could be dictated by the immediate impact of Cyclone Gabrielle.”

The slumped 0.31% to $0.6835, pressured by Wednesday’s data showing that Australian wages grew at the fastest annual pace in a decade last quarter, but remained short of market forecasts. That could lessen the pressure for further aggressive hikes in local interest rates.

Against the Japanese yen, the dollar slipped marginally to 134.91, after rising to a two-month high of 135.23 yen in the previous session.

The stood at 104.15, having gained 0.3% on Tuesday.

The rebound in U.S. business activity comes on the back of a recent slew of resilient economic data pointing to a still-tight labour market, sticky inflation and robust retail sales in the world’s largest economy.

Markets have since raised their…