US Dollar declines after manufacturing growth hits slowest pace in a year

Enrique Díaz-Álvarez03/Feb/2015Currency Updates

GBP

Monday was a quiet day for the UK currency after a number of mixed data releases both domestically and across the pond. Sterling depreciated over the course of the day by 0.15% against the Dollar and by 0.35% versus the Euro.

Just one noteworthy data release in Britain yesterday as Markit announced their flash Manufacturing PMI. The index, which measures the monthly level of growth in the manufacturing industry, unexpectedly rose, having dipped in December. A modest recovery in export orders and trimmed prices due to falling raw material costs caused the index to climb by 0.3 points to 53.0, marginally above forecasts. This PMI level suggests that manufacturing output is currently rising at a quarterly pace of around 0.2%, only a marginal improvement on the 0.1% growth experienced in the last three months of 2014. British manufacturing output now stands at around 5.3% below where it was before the financial crisis in early 2008.

A mostly quiet day in the UK will see the release of the Constructive PMI from Markit at 9:30am.

EUR

Another day of recovery for the single currency saw the Euro climb by 0.2% against the Dollar, despite a host of disappointing output data releases.

A “meagre” performance in Eurozone manufacturing according to Markit Chief Economist, after data released yesterday showed growth slowed in a number of the Euro-area’s major economies. The flash PMI for Germany showed growth declined for the fourth consecutive month to 50.9. Elsewhere, the manufacturing industries in Italy and France both contracted in January having registered readings below the benchmark level of 50, at 49.9 and 47.5 respectively. Despite this, the Eurozone showed some signs of pulling itself out of its recent slump, after the Euro-area wide PMI measure climbed marginally from 50.6 to 51.0.

Nothing more than second-tier data releases in the Eurozone on Tuesday. The main announcement will come at 10am this morning, as Eurostat release their Producer Price index.

USD

A very busy day in the US saw a number of mostly disappointing announcements. As a result, the Dollar finished the day 0.2% down against its major peers.

The main announcement of the day across the pond came from the Institute of Supply Management as they released their manufacturing PMI for January. Manufacturing activity expanded at its slowest rate in twelve months after foreign demand for American made goods weakened last month. ISM’s purchasing manager’s index declined to a seasonally adjusted 53.5, down from the 55.1 registered in December. A number of large US companies have complained about recent US Dollar strength, which has made US products more expensive for foreign buyers in the past few months, denting sales.

US personal spending recorded its largest decline since late 2009 in December, as households appear to be saving the extra income from cheaper gasoline prices. According to the Commerce Department, the monthly level of consumer spending was down by 0.3% while personal income gained by the same amount, extending its run of gains to thirteen consecutive months. Elsewhere, the amount of spending on construction climbed by 0.4%, while ISM’s Prices Paid index, which represents business conditions in the US manufacturing sector, fell to a new low of just 35.0.

Having declined for the previous four months, Factory Orders are once again expected to have fallen in December when released by the US Census Bureau at 3pm this afternoon.

Rest of the world

Speculation surrounding the Swiss National Bank intensified yesterday after signs that the central bank was intervening to weaken the currency as it targets a new exchange rate band; the Franc hit a two week low on the Euro.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.