Sterling falls versus euro and dollar on weak PMI data

Tom Tong02/Jun/2011Currency Updates

GBP

Sterling suffered losses across the board yesterday, largely fuelled by weak manufacturing PMI data which came in lower than expected at 52.1 when the market was expecting the number to be at 54.8. Yesterday’s weak data has strengthened the market’s view that protecting economic growth will remain a precedent over managing inflation with regards to monetary policy. The pound was also dented by UK Mortgage approvals falling to their lowest level since December. On the day sterling closed 0.5% down against the euro and down by 0.35% against the dollar.

Today’s focus on data will switch to the Construction PMI number, due at 09:30, which is forecast to come in at 53.7. With next to no European data there is scope for a difficult morning for the pound if this prints lower than expected.

EUR

The euro was able to make ground against both sterling and the dollar despite European manufacturing PMI being marginally down at 54.6 against the expected figure of 54.8. Compared to the dismal UK number this is relatively flat. The euro closed up by 0.5% against the pound and by 0.2% against the dollar.

It will be a quiet day in general for the euro as there is a Bank Holiday in Germany, France and Italy. The head of the European Central Bank, Jean Claude Trichet, does speak at 10:15, but other than that there is no headline data.

USD

The dollar had a mixed day as it made some ground against the pound and slumped slightly against the euro. US ISM manufacturing PMI came out 53.5, far lower than the 58.1 that was expected. There were also signs that the employment market is very flat in the US as the ADP Non-Farm Employment change showed that jobs growth was at 38k rather than the expected 177k.  The dollar is likely to remain flat for some time. The FOMC is expected to keep borrowing costs at the current 0-0.25% mark for some time as they try to spark economic growth. Yesterday’s data showed both a slump in the manufacturing sector and a lack of growth in terms of employment.

Today the main market focus will be on US Unemployment Claims (expected to be at 416k) at 13:30, and US Factory orders at 15:00.

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Written by Tom Tong

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