Euro Weakens on Disappointing PMI Data
What’s been happening?
Pound Sterling – UK Markets
Despite a lack of macroeconomic data releases and Brexit headlines on Friday, the British pound recovered a large part of its weekly losses on Friday against both the dollar and the euro. However, with several news outlets over the weekend reporting that the ruling Conservative Party is looking oust Prime Minister Theresa May amid poor management of Brexit process is likely to keep the currency under pressure in the new week. “A full-blown cabinet coup is under way tonight to remove Theresa May as prime minister. The end is nigh. She will be gone in 10 days,” The Sunday Times’s political editor Tim Shipman said on Sunday.
On Friday, government spokesman James Slack told reporters that they will consider chances of the deal passing before putting it to a vote. Meanwhile, Irish Prime Minister Leo Varadkat reiterated that there won’t be further extensions for the UK and noted that no one would welcome a 9-month extension because there was Brexit fatigue across the EU and the UK.
US Dollar – US Markets
The greenback took advantage of safe-haven flows on Friday as investors stayed focused on the yield curve inversion following a more-than-4% drop in the 10-year T-bond yield as a potential sign of a recession in the U.S. Moreover, the IHS Markit’s preliminary PMI reports pointed to a slowdown in the expansion rate of business activity in both the manufacturing and service sectors. Commenting on the data, “US businesses reported a softer end to the first quarter, with output growth easing to the second lowest recorded over the last year,” Chris Williamson, Chief Business Economist at the IHS Markit said. The US Dollar Index, which dropped sharply on Wednesday amid the FOMC’s dovish tone, extended its recovery on Friday and closed the week flat.
Other data published by the U.S. Census Bureau revealed that existing home sales rose by an impressive 11.8% in February following January’s 1.4% contraction.
Euro – European Markets
The shared currency suffered heavy losses against its major rivals on Friday with the latest data reminding investors of the economic slowdown in the euro area. The IHS Markit’s Composite PMI, which includes both the Services and Manufacturing PMI data, for Germany came in at 51.5 in March to post the lowest rate of growth in the private sector in nearly six years. “Uncertainty towards Brexit and US-China trade relations, a slowdown in the car industry and generally softer global demand all continue to weigh heavily on the performance of the manufacturing sector, which is now registering the steepest rate of contraction since 2012,” noted Phil Smith, Principal Economist at the IHS Markit. Similarly, the Composite PMI for the euro area dropped to 51.3 to miss the analysts’ expectation of 52 while the Composite PMI for France slumped below 50 to point to contraction in the private sector.
In the meantime, speaking to European leaders at Brussels summit, European Central Bank President Draghi said that the issues surrounding international trade were the main reason for the economic slowdown in the euro area and repeated that a substantial degree of monetary policy was still needed.
What’s coming up?
UK: There won’t be any macroeconomic data releases from the UK on Monday and markets will be paying close attention to political headlines.
US: Chicago Fed’s National Activity Index and Dallas Fed’s Manufacturing Business Index will be featured in the U.S. economic docket on Monday. Philly Fed President Harker and Chicago Fed president Evans are scheduled to deliver speeches as well.
EU: The CESifo Group will publish its sentiment report for Germany, which will include Expectations, Current Assessment, and Business Climate indexes.