Forex Today: Choppy action continues ahead of key PMI data

Currency markets were reported to be trading in a choppy, range-bound fashion as participants positioned ahead of a slate of purchasing managers' index (PMI) releases. PMI surveys gauge business activity and new orders, so they feed directly into expectations for growth and, by extension, the path of central bank policy; a stronger-than-expected reading typically lifts yields and the currency of the reporting economy through the rate-differential channel, while a weak print does the reverse. The most exposed instruments are major FX pairs and short-dated government bond yields, where pre-data hedging and reduced conviction are producing the stop-start price action described. Traders will be watching the headline composite and new-orders sub-indices in the flash manufacturing and services PMIs, particularly any divergence between the two, as it would signal whether goods demand is rotating into services or broadly softening.

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