Dollar continues to look strong despite fall in manufacturing growth

Claire Hogarth02/Oct/2014Currency Updates

A day full of data releases produced volatility and fluctuation in the markets on Wednesday. Sterling and the Dollar both strengthened slightly on the Euro while the Dollar remained strong across the board against its major peers.

GBP

Lower than expected Manufacturing PMI data in the UK caused a brief, short lived drop in the value of cable on Wednesday morning. The index, which represents business conditions within the manufacturing sector, fell by 0.9 to 51.6 having expected to remain unchanged from August. Manufacturing therefore grew at its slowest pace in 17 months, potentially raising question marks over whether the UK economy is ready for a higher interest rate.

The Pound has suffered its longest streak of declines versus the Dollar since July, weakening by 0.1% during trading. Better news for the UK against the Euro, however, as Sterling appreciated further on the single currency during the day, despite the weak manufacturing data, rising by 0.1% by the close of London trading.

EUR

In the Eurozone, Manufacturing PMI also came in slightly lower than expected at 50.3 according to Markit Economics. The markets were quick to react and the Euro depreciated against the Dollar by 0.2% immediately after the announcement was made yesterday morning. The Euro’s main production sector even contracted for the first time in 15 months as data from Germany yielded a PMI figure of 49.9, lower than 50, therefore indicating a contraction.

A big day for the Eurozone today as the European Central Bank will, at 12:45pm London time, be making its interest rate decision and issuing its monetary policy statement for October. The ECB is widely expected to keep rates unchanged at 0.05% but a further announcement on Draghi’s plans for “additional unconventional policy instruments” may be touched upon.

USD

The US Dollar continues to show broad strength as the week goes on after employment data was released by the ADP Research Institute in Roseland, New Jersey. Employment change in the US increased by 213,000, higher than both last month’s figure and what economists had predicted. However, the greenback suffered much like the Eurozone and the UK, from weak manufacturing data which came in over 2% lower than predictions at 56.6. Despite this, the Dollar finished the day slightly up verses the Pound and 0.1% stronger against the Euro.

The greenback advanced by as much as 0.4% on the Yen, reaching its highest level against the Japanese currency since August 2008, before declining to its original position as the afternoon progressed. This after mortgage applications remained negative for September at -0.2%, despite showing an increase on August. This highly volatile number did, however, only have a brief, muted effect on the markets, with the US Dollar Index close to matching its four year high from Tuesday.

More releases due out of the US today as jobless claims and factory orders for September will be announced at 1:30pm and 3:00pm respectively.

Rest of the world

Australia’s Dollar slid further against its peers, depreciating against all but one of its 16 major counterparts after announcing lower than expected retail sales growth of 0.1% compared to a forecast of 0.4%. The country’s currency is now just 0.5% shy of eclipsing January’s low and in turn reaching the weakest level against the US Dollar in over four years.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.