Rising T-bond Yields Helps US Dollar to Extend it's Rebound
What’s been happening?
Pound Sterling – UK Markets
The British pound continued to weaken on Friday and suffered moderate losses vs both the greenback and the shared currency. The only data from the UK showed that the manufacturing sector struggled to gain traction in February with the IHS Markit’s Manufacturing PMI edging down to 52 in February from 52.6 in January. Assessing the data, "The UK manufacturing sector continues to suffer the slings and arrows of outrageous fortune as the harsh realities of Brexit uncertainty, challenges in the global economy and a weak pound affected confidence, jobs and overall activity" Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said. Other data published by the BoE showed that total net lending to individuals came in at £4.8 billion in January to match December’s reading.
Meanwhile, in an interview with the Daily Mail, BoE Governor Mark Carney warned about the sharp fall in business investment. “It is down 20 per cent actually, relative to where it was going to be before the referendum. It is huge. And it has an effect ultimately on the productivity of those businesses, which means it has an effect on future employment and wages,” Carney explained.
US Dollar – US Markets
The US Dollar Index extended its rebound into a third day on Friday and erased nearly all of its weekly losses. Despite the mixed macroeconomic data releases, the ongoing upsurge seen in the 10-year Treasury bond yields provided the primary boost to the currency.
The U.S. Bureau of Economic Analysis on Friday reported that the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation, rose 1.9% on a yearly basis in December to come in line with the market expectation. Underlying details of the publication revealed that personal spending declined by 0.5% in the same period while personal income increased by 1%. Finally, the University of Michigan’s Consumer Sentiment Index dropped to 93.8 in February to miss the experts’ forecast of 95.7. “Although sentiment was still above last month's low, the bounce-back from the end of the Federal shutdown faded in late February. While the overall level of confidence remains diminished, it is still quite positive,” noted Surveys of Consumers chief economist, Richard Curtin.
Later in the day, both the IHS Markit and the ISM reported lower-than-expected Manufacturing PMI readings for February to keep the dollar’s gains limited. In the meantime, Atlanta Fed President Raphael Bostic reiterated that the Fed was in the range of ‘neutral’ and argued that there was no reason to ditch the inflation target.
Euro – European Markets
The shared currency recorded small losses vs the dollar on Friday but was able to close the week in the positive territory on a weekly basis. Against the pound sterling, the euro continued to gather strength but still posted its lowest weekly-close since May 2017.
As expected, Friday’s data showed that the unemployment rate in Germany and in the eurozone stayed unchanged at 5% and 7.8, respectively. Moreover, the Eurostat announced that the core CPI, which excludes volatile food and energy prices, ticked down to 1% on a yearly basis in February to miss the market expectation of 1.1%. Finally, the IHS Markit confirmed the contraction in the manufacturing sector both in the euro area and Germany with February’s Manufacturing PMIs coming below the 50 threshold. “Euro area manufacturing is in its deepest downturn for almost six years, with forward-looking indicators suggesting risks are tilted further to the downside as we move into spring,” said Chris Williamson, Chief Business Economist at the IHS Markit.
What’s coming up?
UK: The IHS Markit will release the Construction PMI report on Monday.
US: The Census Bureau’s construction spending data and the ISM-NY’s Business Conditions Index will be published in the U.S.
EU: Sentix Investor Confidence and Producer Price Index will be featured in the European economic docket.