Pound dropping against the Euro
The preliminary print of the UK manufacturing Purchasing Managers Index strengthened to 66.1 in May, beating expectations of 60.7 and the highest reading on record. The Services PMI strengthened to a 7.5 year high of 61.8 but this was slightly short of forecasts. Orders increased at the fastest pace on record, but supply chain difficulties persisted and delivery times increased substantially. Business expectations remained strong and costs increased at the fastest pace since August 2008.
Following the data the Pound moved higher with a decisive move above 1.4200 to the Dollar while the Euro dipped to near 1.1650. After the US market opened, a stronger Dollar regained ground to Push Sterling below 1.4150 while the Euro settled just above 1.1630.
Futures market data revealed a modest drop in bets on Sterling rising which could curb aggressive Sterling buying. The Pound opens just above 1.4150 to the Dollar while the Euro held just above 1.1630. The Parliamentary Treasury Committee will later today, where Bank of England representatives will address MPs.
The US PMI manufacturing index strengthened to a record high of 61.5 for May from 60.5 previously and above consensus forecasts of 60.2. There was also a surge in the services-sector index to a record high of 70.1 from 64.7 and above expectations of 64.5. There was a strong increase in new orders, although business optimism retreated to a 7-month low. Costs and prices increased at a record rate for the month with manufacturing costs also increasing at the fastest rate since July 2008.
US Treasuries dipped after the stronger than expected US PMI data on Friday and US yields recovered from lows near 1.61%, although yields were still little changed on the day. The US currency posted net gains to 108.90 and markets will continue to monitor the commentary closely for any hints of a shift in underlying policy. The US Administration announced that it cut the US infrastructure spending bill to $1.7trn from $2.25trn, but Republicans remained opposed to the plans.
The Euro is currently looking for fresh clues whilst trading around the 1.2195 against the Dollar, heading into Monday’s trading session. The currency pair dropped on Friday as the market’s reflation fears put a bid under the US currency.
The Dollar remains vulnerable above the 1.2200 level, so keen eyes will be kept should the Euro manage to break and keep above the key psychological level.
Data to watch
15:30 – GBP – BOE Gov Bailey Speaks