Dollar Fails to Take Advantage of Strong NFP Data
What’s been happening?
Pound Sterling – UK Markets
The British pound suffered modest losses against both the dollar and the euro on Friday following the disappointing PMI data. The report published jointly by the Chartered Institute of Procurement & Supply (CIPS) and the IHS Markit revealed that the Manufacturing PMI in the UK fell to a 3-month low of 52.8 in January to fall short of the market expectation of 53.5. “Brexit uncertainty, the exchange rate and signs of a European economic slowdown all weighed on sentiment. The overall degree of positive sentiment dipped to a 30-month low,” the publication read.
While updating the press on Brexit developments, British Prime Minister Theresa May’s spokesman, James Slack, said that the government was looking at options to secure changes to the Irish Backstop in the withdrawal agreement and added that those would be discussed with the EU in the near-term.
US Dollar – US Markets
The US Dollar Index fluctuated sharply in the early NA session with investors reacting to the mixed labour market data from the U.S. The Bureau of Labor Statistics on Friday announced that the nonfarm payrolls increased by 304,000 in January to surpass the analysts’ estimate of 165,000 by a wide margin. However, the BLS also revealed that December’s reading of 312,000 got revised down to 222K and the unemployment rate ticked up to 4%. Furthermore, wage inflation, which is measured by the average hourly earnings, rose only 0.1% on a monthly basis to miss the market forecast of 0.3%.
To help the greenback gather some strength in the second half of the day, both the ISM and the IHS Markit reported that the business activity in the manufacturing sector expanded at a more robust pace than expected in January. “January saw US manufacturers start the year with renewed vigour. Production rose at a markedly increased rate, commensurate with the factory sector contributing to robust economic growth of approximately 2.5% in the first quarter if such momentum can be sustained in coming months,” said Chris Williamson, Chief Business Economist at the IHS Markit.
Finally, the University of Michigan’s Consumer Sentiment Index improved to 91.2 in January’s final reading from 90.7 reported in the previous estimate. “The end of the shutdown caused only a modest boost in the Sentiment Index. The typical impact of such "crisis" events is short lived, with consumers quickly regaining lost confidence. That is unlikely to occur this time as the deadline for resolution has only been extended until mid February,” Surveys of Consumers chief economist, Richard Curtin explained.
Euro – European Markets
The Eurostat said that the inflation as gauged by the Consumer Price Index (CPI) edged down to 1.4% on a yearly basis in January to match the experts’ forecast. The core CPI, which excludes volatilte food and energy prices, rose to 1.1% from 1% in December to support the shared currency. On the other hand, the IHS Markit’s Manufacturing PMI in the eurozone stayed unchanged at 50.5 when compared to the previous estimate while retreating further below the 50 mark, 49.7, in Germany. Commenting on the data, “Germany's manufacturing sector showed no sign of turning the corner in January, with the downturn in order books extending to a fourth straight month and gathering pace. A number of factors continued to undermine demand, affecting predominantly the intermediate and capital goods sectors,” noted Phil Smith, Principal Economist at the IHS Markit.
What’s coming up?
UK: The IHS Markit will publish the UK Construction PMI data report on Monday.
US: The ISM-NY’s Business Conditions Index will be featured in the U.S. economic docket alongside with November factory orders.
EU: Sentix Indextors Confidence and January PPI figures will be released from the euro area.