UK Manufacturing takes a hit
GBP – The UK PMI manufacturing index was lower than expected yesterday with a decline to 54.6 for February from a revised 55.7 the previous month. The index remained above the long-term average and overall confidence remained firm with further gains in employment while inflation pressures remained strong. In other news, House of Lords amendments may delay the passing of the Article 50 Bill, but this should prove to be a short-term hurdle. Nevertheless, a less certain path towards the self-imposed end-March deadline could pressure both May and GBP.
The UK construction Purchasing Managers’ Index (PMI) for February is due for release today at 9:30am, with the figure expected to show no growth, however, should remain in the expansion territory, with a print of 52.0 seen in January. A positive surprise in the construction sector activity report would offer the much-needed respite to the pound, sending the rate back above 1.23 handle. On the other hand, a disappointing PMI reading could knock-off the GBPUSD pair below Jan-end lows near 1.2250 region, as the bears would eye next target of 1.2200. A weaker print of the construction sector PMI may not come as a surprise, given yesterday’s dismal manufacturing PMI report, as the construction PMI has widely shown the similar behaviour as the manufacturing and services PMIs as detailed by analysts at Societe Generale.
USD – The dollar hovered near a seven-week high on increasing signs given by Federal Reserve officials that the U.S. central bank is seriously considering raising interest rates this month. Federal Reserve Governor Lael Brainard said late on Wednesday an improving global economy and a solid U.S. recovery mean it will be “appropriate soon” for the Fed to raise rates. The dollar index, which measures the greenback against a basket of six major currencies, was slightly higher at 101.91. Two influential Fed policymakers, William Dudley and John Williams, encouraged dollar bulls yesterday with comments that suggested rate-setters are worried about waiting too long in the face of pending economic stimulus from Washington.
The Federal Reserve are likely to raise interest rates this month unless the U.S. jobs data due next week is bad U.S. President Donald Trump’s long-awaited speech on Tuesday failed to give specific details on his economic plans, but outlined broad tax cuts and a $1 trillion public-private initiative to rebuild degraded roads and bridges.
EUR – The German import price inflation jumped to 6.0% year on year. The data came in higher than expected with prices rising by 0.9% month on month, hence bringing the annual rate to a whopping 6.0% from 3.5% last year, the highest annual rate since May 2011. Even excluding mineral oil products the annual rate rose to 3.0% from 1.7% year on year, which together with the uptick in the headline rate to above the ECB’s 2% limit will only add to growing inflationary concerns in Germany and add to pressure on Draghi. The dollar has been well backed this morning and EUR has remained heavy versus the USD after an eight-day low at 1.0514 level yesterday, although German import data lifted the EUR just off its lows versus the greenback.