NEW YORK ( BBH FX Strategy) -- The U.S. dollar is broadly firmer after weaker-than-expected data reports in China and the eurozone. The euro is erasing earlier gains and breaking below this week's previous lows around 1.313 after March's Purchasing Managers' Index composite disappointed expectations, even in Germany, with readings below the boom-bust level of 50.Follow TheStreet on Twitter and become a fan on Facebook. Sterling is down after February retail sales also disappointed. The dollar is softer against the yen, with USD-JPY breaking below 83.0. Global stocks are mixed, with the MSCI Asia up 0.4%. Despite the softer data, policy action gave some investors hope that China will ease policy further.
The U.S. reports weekly initial jobless claims Thursday for the week ending March 17. The report may draw more than usual attention as it covers the same week as the non-farm payroll survey. Weekly claims are on their cyclical low, but improvement has slowed. The four-week moving average has been essentially flat for almost a month, though at 356,000 it compares favorably with 389,000 a year ago. Still, the improvement from the February survey week is small, warning of some moderation in U.S. job creation after the strongest six months since 2006. Such a report may reinforce the more constructive tone in U.S. Treasuries and the profit taking in equities, and would fit in with the soft tone set by other data globally.
On top of the cut, an editorial in the China Securities Journal noted an increased likelihood of more aggressive interest rates cuts because lending volumes remain depressed. The article speculated that easing would come after the bank earnings reporting season has ended on March 30. There are also reports that more banks (this time in Nanjing and Beijing) are offering lower interest rates for first-time homebuyers. All of the above is right in line with our expectations for a combination of slower growth with gradual increase in easing. On the foreign exchange front, CNY saw the strongest one-day appreciation this year Thursday, fixing nearly 0.4% stronger to just below 6.3 and cancelling out the entire depreciation since the start of the month. We expect USD-CNY volatility to increase this year, but for spot to stay roughly around this level until the end of the year. Speculation is that the stronger fix is a bid to curb capital outflows. It seems completely reasonable that outflows are increasing, but we doubt this would be a problem for the PBOC just yet.