What's Next for Mexico?

One-stop summary of the key events and issues in the week ahead. From Goldman Monday 4 February European Services PMIs (Jan) US Factory Orders (Dec): GS: 2.7%, Consensus: 2.3%, Previous: 0.0% Also interesting: UK Construction PMI Tuesday 5 February

Marc Chandler submits:The US dollar remains under relentless pressure. Even though the ADP has tended to under under-estimate private sector job growth, the unexpected weakness reported yesterday is the latest catalyst for expectations of renewed asset purchases by the Federal Reserve. The euro approached the $1.40 level before the market paused in Europe.

Marc Chandler submits:The focus in North America today will be the FOMC meeting. Since the end of last week, there has been some re-thinking about the outcome of today’s meeting. In particular, many Fed-watchers are playing down the likelihood that the Fed renews its asset purchases. It was one of three steps that Fed chief Bernanke suggested (in late July) as possible ways the Fed could provide more support for the economy.

Marc Chandler submits:Executive Summary: We suspect the dollar’s decline against the euro is reaching its final stages. US interest rates appear to have largely priced in some form of quantitative easing by the Federal Reserve (though headline risk remains in terms of the actual decision) and European rates have risen to a price in the risk of an ECB rate hike in Q1 11. Medium-term investors may want to consider reducing short dollar exposures.

These days the Bank of England is like the proverbial swan gliding on a lake. On the surface they haven't changed policy at all for over a year - and they've kept the base rate at 0.5 per cent for two. But make no mistake: there's plenty of activity underneath.

Marc Chandler submits:The U.S. dollar's pullback has been attributed to three main factors. First, some are placing emphasis on Moody's warning that the Obama-Republican fiscal compromise increases the likelihood of a negative outlook within two years. While this is potentially worrisome, the market most directly impacted would be the Treasury market and it rallied after the Moody's announcement. If the Treasury market did not respond, this does not seem like a very satisfying explanation.

Marc Chandler submits:Greek 2-year and 10-year bonds are holding in fine today, with the spread against Germany narrowing around 5 bp. Pressure has intensified in recent days as European support seems half-hearted.

  There are several incremental additions to our information set from developments over the past week.  The US manufacturing sector is stalling, with the ISM at new four month lows, and the sector failed to add jobs in April, for the first time since last September.  The euro area economy remains weak and the German engine also appears to be flat lining.