European Slowdown Continues

The final reading of manufacturing PMI across the Eurozone this morning has confirmed the dismal state of activity in the region, turning focus onto tomorrow’s rate setting meeting of the ECB. Across the Atlantic, manufacturing activity for April indicated a faster pace of expansion, contrary to the regional manufacturing data. The ADP employment data due today is likely to draw market attention as it usually serves as a precursor to the non-farm payrolls report slated for Friday. At home, following yesterday’s weak manufacturing PMI, data just out indicated that construction activity in the UK expanded at a slower pace for April.

Pound Sterling – UK Markets

Yesterday, the Pound advanced against the Euro as investors remained wary about the contagion effect of the Eurozone debt crisis. Sterling was mostly unaffected by the dismal manufacturing data for April which was primarily due to weak export demand from the Eurozone. However the dismal GDP data, coupled with a weak PMI reading, has raised questions over the possibility of the UK emerging out of the recession and has once again heightened market speculation that the BoE may induce an additional round of easing measures. The Pound continues to trade on a firmer footing against the Euro this morning on the back of downbeat manufacturing data across Europe. Data just out revealed that the British construction sector activity expanded for April, although at a slower pace. The housing sector continues to show improvement, as data just released indicates that mortgage approvals in the UK unexpectedly rose for March. A report released earlier this week indicated that house prices in the UK rose for April. With no other crucial economic data slated for release today, news flow emanating from the Eurozone is likely to determine the direction of Sterling.

US Dollar – US Markets

Yesterday, the US Dollar moved higher against the Euro as market speculation of further easing for the US economy took a backseat following strong manufacturing activity for April, the highest level since June 2011. The previously released regional manufacturing indices for April were in stark contrast with this. Moreover, key policymakers from the US Federal Reserve have expressed their objection for further easing measures for the US economy. In today’s trading session, weak manufacturing data from the Eurozone has aided the greenback to move higher against the majors. Additionally, traders turned cautious ahead of key elections in the Eurozone towards the end of the week and ahead of tomorrow’s Spanish bond auction. Ahead of the crucial non-farm payrolls report due later this week, the ADP Employer Services data due today is expected to reveal a slowdown in hiring for April. Although manufacturing has showed signs of improvement for April, a possible weakness in the job market could again renew market speculation for additional easing. Among other releases due today, factory orders is expected to show a decline for March.

Euro – European Markets

In yesterday’s trading session, the Euro fell against the US Dollar as QE hopes continued to dampen on the back of an unexpected improvement in US manufacturing activity. The Euro has registered losses against the majors this morning, as data confirmed weakness in manufacturing activity across the Eurozone and has elevated fears of the region slipping back into a recession. Additionally, the number of unemployed people in Germany unexpectedly rose for April, raising serious concerns about the contagion effect of the Eurozone debt crisis. Traders remain cautious ahead of the Spanish debt auction due tomorrow and the French and Greek elections scheduled on Sunday. Amid worrying signals from the Eurozone economy, data due today is expected to reveal an uptick in the region’s unemployment. The present situation in Europe, on both economic and political front, has indeed shifted focus onto tomorrow’s ECB monetary policy meeting followed by President, Mario Draghi’s post meeting press conference.

Other Currencies – Highlights

The Swiss Franc has declined against the US Dollar and Sterling this morning, as data revealed an unexpected contraction in Swiss manufacturing activity for April. Manufacturing PMI fell sharply to a reading of 46.9 for April, compared to a reading of 51.1 posted in the previous month and lower than market expectations of a reading of 51. Persistent fears of slowdown in the Swiss economy have heightened market speculation of a possible revision to the Swiss Franc’s floor against the Euro. In the previous week, Thomas Jordan, the new President of the Swiss National Bank (SNB), had cautioned that the currency is still overvalued against the Euro and poses a major threat for the economy. Markets are expected to closely monitor retail sales data due later this week to gauge the stance SNB may take in the near future. However, the Swiss Franc is trading flat against the Euro, as weakness in the Eurozone manufacturing activity offset worries surrounding the Swiss economy.