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Fundamental Afternoon Wrap: Euro PMIs and Central Bank meets in focus

This afternoon institutional report reflects market mood today, with focus falling on the key central bank meetings later in the week and the stablising European services PMIs today. There is a feeling that absent sudden Italian developments, EUR/USD may struggle to decline much further, while in the UK the shock of Manufacturing PMIs was offset by today's numbers.

EUR

Brown Brothers Harriman analysts note that Euro area service PMIs showed a bit of improvement from the 47.3 flash reading, rising to 47.9. However they add that the real take away and one not lost on the foreign exchange market which sold into the euro's bounce, was that the February reading was weaker than the 48.6 reading seen in January. ING economist Martin van Vliet notes that the sharp increase in retail sales raises hopes that the consumer sector will be less of a drag on the Eurozone economy in the first quarter of this year. Overall, he feels that the tentative signs of stabilisation in retail sales, coupled with the upward revision to the earlier “flash” Eurozone composite PMI (to 47.9 in February), reinforces his belief that the ECB will keep interest rates on hold on Thursday.

Jane Foley of Rabobank feels that despite the downside risks, on the back of the QE headwinds undermining USD, she is reluctant to call lower lows on EUR/USD. However, the Italian situation looks like a wildcard that needs to be monitored. Nick Bennenbroek of Wells Fargo notes that the euro is up on firmer than expected data and with some indications surrounding the European Union finance ministers meeting that more flexibility surrounding Europe’s austerity plans may be possible.

GBP

Brown Brothers Harriman analysts note that after reporting weak manufacturing and construction PMIS, the UK reported a better than expected CIPS service PMI, the highest reading since last September. BNP Paribas economist Catherine Stephan notes that in February, activity accelerated again in services, with the good news partially offsetting the poor performance in the manufacturing sector. Overall the PMI composite Index remained in expansion territory.

USD

Marc Chandler of Brown Brothers Harriman notes reports from the YS Commerce Department that estimate hat the dollar value of US exports rose sharply last year to $2.2 trillion which means that US exports appear to have surpassed Chinese exports, which the Chinese government estimates at $2.05 trillion.

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