Market sentiment is still good. PMI data from Europe

Yesterday, the dollar strengthened and the mood on the stock markets remained relatively good. Donald Trump won the New Hampshire primary and thus defeated former UN ambassador Nikki Haley. This is the second victory in a row for the former president.

EUR / USD exchange rate yesterday set new local lows at 1,0820, but today it is back around 1,0880. Yields of American bonds dropped at the short end and increased at the long end. The Bank of Japan did not change the parameters of its monetary policy. Today, the market is interpreting the PMI results for Europe (morning) and the USA (afternoon).

The Bank of Japan did not surprise with its decision

As widely expected, the BOJ kept the interest rate at -0,1%. and the target yield on 10-year bonds at approximately 0 percent. Governor Kazuo Ueda did not comment on when the bank would end negative interest rates. He added that the confidence in achieving BoJ forecasts continues to gradually increase. Ueda's comments confirm the prevailing market view that the BOJ is likely to raise interest rates at some point this year.

The institution currently forecasts inflation at 2,4% for the fiscal year starting in April. This means estimates are still above the bank's target of 2%. The yen managed to strengthen itself during the press conference USD/JPY currency pair dropped to 147,00. In the following hours, however, the rate increased to 148,60, which was due to the strength of the USD. Currently, the prices are down again to 147,50.

Little improvement was expected

Another victory for Trump in the primaries increases his chances of success in the primary race scheduled for this fall. In the future this could mean a stronger dollar and higher long-term rates. Yesterday's declines in EUR/USD may have been partly due to the latest events in US politics. However, the movement was modest and short-lived. The dollar should react more strongly to political factors, but only in the second half of the year. Now what matters more is the Fed and when the institution will start easing its monetary policy.

Chinese stocks rose on reports that authorities were considering a market rescue plan. After this information the CSI300 index increased by 0,4% yesterday., while the Hang Seng index gained 2,6%.

This morning we learned the PMI data from Europe. The PMI for the services sector in the euro zone fell by 0,4 points in January to 48,4. Most economists polled in advance expected further modest improvement. The index therefore indicates that the economy has been contracting for six months. Although the index for the manufacturing sector improved significantly from 44,4 to 46,6, it still remains negative. The industry is still far from recovery.

Source: Łukasz Zembik, OANDA TMS Brokers