Economic releases, trade talks drag EUR/USD lower
Economic releases from the US received yesterday surprised to the upside. PMI/ISM readings measuring the activity in Manufacturing in June continue to show expansion in the sector.
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ven though the readings are significantly lower than what we are used to they are still significantly better than other major economies and still point to healthy growth. In addition to the positive economic data from the US, the US Dollar yesterday was supported by the return to trade talks between the US and China which boosted US equities and Treasury yields.

Readings from the Euro Area, on the other hand, were quite mixed. Job market data showed that the unemployment rate in May unexpectedly fell to 7.5%, the lowest level in more than a decade. Such improvements in the labor market are quite welcome considering they’re likely to support internal demand and inflation. On the other hand - yesterday’s Manufacturing PMI revision confirmed that the activity in the sector contracted, dropping slightly more than estimated earlier, touching the 47.6 level.

Brexit worries in focus as UK’s PMI indices drop sharply


Yesterday’s report from IHS Markit/CIPS showed that the PMI Index for the manufacturing sector in the UK fell sharply from 49.4 in May to 48.0 in the following month. Yesterday’s reading suggests that the sector contracted in June, departing further from the level 50 which separates the sector’s contraction from expansion. We haven’t seen such worrisome prints for quite a while - the activity of the sector measured by the index was the lowest since February 2013. This is a reflection of weakening internal as well as external demand, likely related to Brexit and the global economic slowdown. The release added to the Brexit worries, which restrain the British currency from appreciating.

Today’s Construction PMI Index showed an even sharper decline, falling from 48.6 to 43.1 in June, dropping to the lowest level in more than 10 years. This serves as a further confirmation of uncertainty-induced economic slowdown and leads to further declines for Sterling in the morning. Currently, we wait for Wednesday’s PMI release for the services sector - considering that it makes up around 80% of the country’s GDP, a disappointing reading could lead to strong swings in Sterling.
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