Daily Insight

The Dollar came under further pressure yesterday, falling an additional 0.4% against the Pound but managed to rise modestly versus the Euro by the close of trading last night following a mixed bag of U.S economic data. Initially, the Dollar tumbled following the release of the Institute of Supply & Management's index on U.S manufacturing, which unexpectedly contracted to a reading below 50 in January as factories cut production and reduced orders. The gauge of manufacturing activity was widely expected to increase from 51.4 in December but surprisingly fell to the lowest level since April 2003, which correlates with the unexpected drop in activity in the Chicago region over the same period. However, following the initial negative reaction, the Dollar managed to climb against the Euro and traded back below 1.9700 versus the Pound as a separate report on Pending Home Sales increased the possibility of a rebound in the housing sector. The focus today will undoubtedly fall on the release of the monthly U.S job report, which is expected to show that the economy added 150,000 jobs to payrolls in January while average hourly incomes are also expected to rise. Following the positive growth in the U.S labour market over the past year, the Dollar may come under some considerable pressure this afternoon if the job report comes out under expectations.

The Euro declined against the majors yesterday, dropping modestly versus the Dollar and falling 0.4% against the Pound as a report on European manufacturing slowed for a third consecutive month in January as exports continued to drop. The Purchasing Manager's Index dropped to a reading of 55.5, the lowest since February last year, although a figure above 50 indicates growth. The report yesterday will only add to previous evidence that economic growth will continue to slow in the Euro-zone, decelerating from the fastest pace in six years. The Euro may come under further pressure this morning following the release of Producer Price index, which is expected to show that a gauge of inflation slipped to 4.1% year-on-year in December from 4.3% the previous month.

The Pound managed to rise against the majors yesterday, consolidating the gains made in the previous session as we closed last night 0.4% higher against both the Euro and the Dollar as UK factory output unexpectedly quickened in January. The CIPS manufacturing survey rose to a reading of 52.8 in January from 52.0 the previous month and the report will only fuel further speculation of a rebound in the sector, which will surely help propel economic growth this year. In addition, the growth in manufacturing seems to be weathering the Bank of England's decision to raise UK interest rates three times since August and the Pound's 14% appreciation against the Dollar last year, which will obviously weight on UK exports.

Data Released 2nd February

EU 10:00 Producer Price Index (December)

U.S 13:30 Non-Farm Payrolls (January)
- Average Hourly Earnings / Unemployment

U.S 15:00 Michigan Sentiment (January Final)
U.S 15:00 Factory Goods Orders (December)

written by Adam Solomon