Key US Employment data release following weak widespread manufacturing data

Tom Tong02/Sep/2011Currency Updates

GBP

Sterling fell to a three-week low versus the dollar on Thursday after manufacturing activity data painted a healthier economic picture in the United States than the UK, leaving the pound vulnerable to further losses continuing the decline of the previous two days. The pound was at its lowest level since August 11 against the US Dollar. In the afternoon it dived after ISM figures showed U.S. factory activity grew marginally in August. Sterling had earlier fallen on a UK manufacturing survey, the data showed UK manufacturing activity shrank at its fastest pace in more than two years in August, hurt by a sharp drop in demand for exports, and adding to concerns Britain’s economic recovery is stalling.

The manufacturing index fell to 49.0, its lowest since June 2009 and below the 50 line separating contraction from expansion for the second straight month, though the reading was slightly better than forecasts for 48.6.

A string of disappointing data and worries over the impact of fiscal cuts has raised questions over UK government austerity measures and fuelled expectations interest rates will be left at record lows until the end of 2012.
There have also been increasing calls for another round of asset purchasing by the Bank of England to try to stimulate economic growth, with concerns over the world economy contributing to the deteriorating picture.

This morning sees the monthly release of UK Construction Purchasing Managers Index which is viewed as a leading indicator of economic health and expected to post at 52.9 down from 53.5 last month.

EUR

Thursday saw the euro down 0.3 percent against sterling after surveys showed manufacturing in Italy and France contracted in August, while activity in Germany’s manufacturing sector was weaker than expected.

Additionally the Euro-zone is facing increased risks due to potential infighting among member states. Dutch, Finnish and German finance ministers will meet on September 6 to discuss the Greek bailout as well as the broader Euro-zone debt crisis. Finland has demanded collateral in exchange for Greek bailout funds, a serious enough demand that it has been floated that Greece would nationalize their banks, and use said banks’ equity as collateral. The Finnish demand for collateral has triggered similar demands from Austria and the Netherlands, a move that could jeopardise the second Greek bailout.

USD

Thursday saw a raft of US data releases mostly in line with expectations, with ISM Manufacturing PMI and ISM Prices posting higher. The PMI figure printed at 50.6 vs an expected 48.7 (figure >50 indicating expansion) contrasting with the earlier UK Manufacturing PMI figure of 49.

Friday may see significant volatility focused around the highly anticipated release of this month’s Non Farm Payroll and Unemployment Figures ahead of the Fed’s extended 2-day meeting on the 20th of September. NFP has potential to weigh heavily on growth prospects for the world’s largest economy as the recovery in the labour market remains on shaky ground. Estimates suggest a print of 74-90K jobs, down from a previous read of 117, while the unemployment rate is expected to hold at 9.1%. The direction of the dollar hangs in the balance with heightened risk aversion flows likely to support the greenback should the data disappoint.

Print

Written by Tom Tong

Vestibulum id ligula porta felis euismod semper. Donec ullamcorper nulla non metus auctor fringilla. Cras justo odio, dapibus ac facilisis in, egestas eget quam. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Donec ullamcorper nulla non metus auctor fringilla.