The euro edged a fairly measured start to currency trading after positive euro area economic data suggested the European Central Bank will sound a little less dovish at its policy announcement. Despite record UK manufacturing data investors still remain concerned about Bank of England policy under new governor Mark Carney before his first meeting. The US dollar traded mostly sideways but was supported by more forecast-beating US economic data, keeping the currency near one-month peaks on a trade-weighted basis ahead of data that is expected to show US factory activity advancing.
Sterling
Record manufacturing data gave sterling a limited boost on with investors wary about Mark Carney’s arrival at the Bank of England which could lead to a more dovish central bank. The CIPS manufacturing PMI rose more than expected in June as Britain’s manufacturers recorded their strongest monthly growth in over two years. Analysts expect services PMI to show a slight slowdown in activity in the UK’s main services industry. Sterling climbed above an earlier four-week low against the US dollar following data, but remains depressed by worries ahead of the BoE’s monetary policy announcement on Carney first as governor.
US dollar
The US dollar’s positive overall outlook was kept in place after stronger-than-expected US manufacturing data underlined the case for a less accommodative Federal Reserve. The ISM manufacturing Index jumped from 49.0 to 50.9 in June before data that will likely show solid gains in US factory orders in May. ISM manufacturing report also showed hiring in the sector at its weakest in four years which may have been a factor restricting demand for the US currency.
Euro
Traders favoured the euro after improved euro area economic data suggested the European Central Bank will not signal to markets that it is still considering using unconventional policy tools. Although still in contraction, revised data showed Europe’s manufacturing PMI for June at a 16-month high while unemployment across the region came in below forecasts in May. Furthermore, inflation in the 17-member economy increased from 1.4 per cent (y/y) to 1.6 per cent in June, data that technically reduces the room the ECB has to ease its monetary policy. The euro would be at risk of a sell-off. Should the ECB still communicate to investors that it stands ready to cut borrowing rates again to support its recession hit region.