Dollar Outperforms Boosted by PMI Data, Surging T-Bond Yields
What’s been happening?
Pound Sterling – UK Markets
The British pound gathered strength against the euro but failed to stay resilient vs the greenback on Monday. The data published jointly by the IHS Markit and the Chartered Institute of Procurement & Supply (CIPS) on Monday showed that the business activity in the UK’s manufacturing sector contracted with the June PMI slumping to its lowest level in more than six years at 48.
Commenting on the data, "The manufacturing downturn is deepening, with a second month in contraction and production shrinking at the steepest rate for seven years," noted Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply. “The triple whammy of the Brexit-delay fallout, weaker domestic and export demand impacted on new orders, optimism and job creation, and the sector was left gasping for breath.”
Meanwhile, Jeremy Hunt, one of the candidates to succeed British Prime Minister Theresa May, on Monday said that it will be to reach a new Brexit deal with the EU but added that they will take a different approach than PM May. On the other hand, Boris Johnson earlier in the day repeated that although he doesn't think that they will go out without a deal, they still need to prepare for a no-deal scenario. for it. Regarding the funding reserved for a no-deal scenario. "There needs to be decent pay in the public sector. We are going to make sure we properly fund our public services," Johnson said.
US Dollar – US Markets
The 10-year US Treasury bond yield rose more than 2% on Monday boosted by the positive market sentiment after U.S. President Trump and Chinese President Xi have agreed to a ceasefire in the trade war while engaging in a fresh round of negotiations. The upsurge in the T-bond yields and the upbeat PMI data helped the greenback outperform its rivals and the US Dollar Index rose to its highest level in nearly two weeks.
The IHS Markit’s Manufacturing PMI rose to 50.6 in June from 50.5 and came in better than the market expectation of 50.1. Despite the positive reading, "US manufacturers reported business conditions to have remained the toughest for nearly a decade in June. The past two months have seen the lowest readings since the height of the global financial crisis in 2009,” noted Chris Williamson, Chief Business Economist at the IHS Markit. Additionally, the ISM’s Manufacturing PMI edged down to 51.7 in June from 52.1 in May but beat the analysts’ estimate of 50.1. Other data from the U.S. showed that construction spending in May declined by 0.8% on a monthly basis but did little to nothing to limit the greenback’s gains.
Euro – European Markets
The shared currency struggled to find demand following the mixed macroeconomic data releases from the euro area and weakened against both the dollar and the pound sterling on Monday.
Germany’s Destatis reported that the unemployment rate remained unchanged at 5% in June with the number of unemployed decreasing 1,000. "The influence of a slackening economic environment is showed most clearly in underemployment, which also reflects changes to labour market policy and short-term inability to work," Destatis explained in its press release. On the other hand, the unemployment rate in the eurozone ticked down to 7.5% in May.
The IHS Markit’s Manufacturing reports revealed that the manufacturing sector both in Germany and the eurozone continued to narrow in June with PMI readings coming in below the 50 threshold. “Eurozone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years,” Chris Williamson, Chief Business Economist at the IHS Markit said. “The disappointing survey rounds off a second quarter in which the average PMI reading was the lowest since the opening months of 2013, consistent with the official measure of output falling at a quarterly rate of approximately 0.7% and acting as a major drag on GDP.”
What’s coming up?
UK: The IHS Markit will release the Construction PMI report on Tuesday.
US: The ISM-NY’s Business Conditions Index will be the only macroeconomic data release from the U.S. NY Fed President Williams is scheduled to deliver a speech as well.
EU: The European economic docket will feature the Eurostat’s Producer Price Index (PPI), which is expected to fall to 1.6% on a yearly basis in May from 2.6%.