Dollar Sells Off as Weak Data Puts to Question Bernanke's Optimism (page 2 of 2)

Meanwhile Switzerland also reported strong PMI numbers with its own manufacturing index rising from 60 to 65.2. The market had anticipated a dip, but the Swiss economy continues to outperform expectations.

British Pound

Like the Euro, the British pound was driven higher by dollar weakness, but unlike the Euro, the pound did not benefit from stronger economic data. In fact, unlike its major counterparts in the rest of Europe, manufacturing activity in the UK grew at a slower pace last month.

On a day when surprises are plentiful, the contraction in the manufacturing sector came as a shock to many. The diverging economic performance in Europe and the UK has pushed EUR/GBP to the highest level since July 2005. The Bank of England is scheduled to meet and decide on interest rates this week.

Economic data having been quite mixed over the past few weeks with the housing sector stabilization and inflation still consistent with price stability, the central bank is expected to leave interest rates unchanged at 4.50 percent once again. In fact, as long as data is mixed, the BoE will probably continue to leave monetary policy unchanged.

Japanese Yen

A weaker Tankan report had prompted a sell off in the Japanese Yen throughout the Asian trading session. The currency recovered quite impressively however once Europe joined the markets.

The index measuring the sentiment of large manufacturers dipped to 20 from 21 while the index for non-manufacturers remained unchanged at 18 in the first quarter. Despite the decline, manufacturing activity still remained solid in the first quarter. Taking a look at the price action in the NZD, we see that carry trade liquidation remains a predominant theme with traders buying back their short yen positions.