Daily currency report
Overview
The greenback crashed through key psychological trading levels against the yen for the first time in weeks, as record-low ISM manufacturing index poured cold water over bets the Federal Reserve was just a few meetings away from starting to pare back stimulus for the US economy.
Sterling was already on the move higher after forecast-beating manufacturing data boosted optimism that Britain’s economic recovery is becoming more wide-ranging and less dependent on the services sector. The euro also gained, touching three-week highs against the under-pressure US dollar after revised PMI manufacturing surveys suggested recession in the eurozone may be bottoming and will not require unconventional policy action from the European Central Bank.
Still, investors will continue to take up positions ahead of the ECB’s monetary policy decision as well as all-important jobs report from the US economy. Markets will examine producer price data from the euro area to see if the ECB has more room to consider looser policy although much of currency trade will be preparation work ahead of packed global economic calendar.
Sterling
Forecast-beating manufacturing data pushed the British pound up across the board and to three-week highs versus the US dollar, supporting hopes Britain’s economic recovery is strengthening. The CIPS’ manufacturing PMI jumped to 51.3 in May, outdoing analysts’ expectations of 50.2. In addition to quicker growth in the UK’s troubled manufacturing sector, April’s weak 49.8 PMI result was encouragingly revised upwards, moving above the important 50 level, which separates growth from contraction.
US dollar
The US dollar fell sharply after shock US manufacturing data and dovish Central Bank comments poured cold water over expectations that the Federal Reserve was just a few meetings away from starting to pare back stimulus for the US economy. ISM manufacturing index for May unexpectedly plunged to a level of 49.0, the first time it had fallen below the important 50 level since November last year. The reading was the sector’s lowest since June 2009.
Euro
Revised manufacturing surveys suggested recession in the eurozone may be bottoming and an economic recovering nearing, encouraging traders back into the euro. Factories in the eurozone contracted at the slowest pace in over a year last month, after May’s manufacturing PMI was unexpectedly revised up from 47.8 to 48.3.