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Dollar rises after release of strong ISM Manufacturing data

USD

The dollar rallied on Monday after a key gauge of Manufacturing came out higher-than-expected, solidifying expectations that the Fed would move to raise interest rates before the end of the year.

ISM Manufacturing Index increased to 52.8 in May from 51.5 previously when an increase to only 52.0 had been expected. The New Orders Component of the Index, which is often viewed as a significant leading indicator for the economy increased to 55.8 from 53.5 a rise of 2.3%.

The Prices Paid index of the report rose a whopping 9 points from the previous April report, to reach 49.5 from 40.5 before, probably indicating more inflationary pressures building up in the economy – another Fed concern – whilst employment rose 3.4% to 51.7%.

Other data was mixed, although Construction Spending rose 2.2% mom in May, easily beating the 0.7% expected and the 0.5% previously.

Manufacturing PMI rose, but Personal Consumption Expenditure came out below expectations – registering a 1.2% rise yoy in April, from 1.3% previously, and 1.4% forecast.

Personal Spending was flat but Personal Income rose by an unexpected 0.4% in April.

EUR

Investors decided to look past positive data and sell the euro on Monday; exact reasons were unclear although the increasing risk of a Greek default was posited as one.

Investor concerns may have originated in a further flight of capital out of Greek Banks at the end of last week and an article penned by the Greek Prime Minister in the French paper Le Monde, in which he defiantly rejected creditor reform demands and threatened to ‘detonate’ a euro-area crisis, by refusing to meet demands in return for a cash bailout.

It appears the Greek government is preparing to ally itself to Russia and other BRICS countries as an alternative to the euro-zone if the relationship completely breaks down and there is a Grexit. It has already signed a pipe-line deal with Russia, and may be able to get funds from the BRIC bank.

On the data front Euro-zone Manufacturing PMI was relatively upbeat, with Spanish data the first to be released and showing the highest result for 8 years and almost all the other member states beating previous results except Germany, which slowed down from April.

German Inflation data was on the button – and E.U harmonized rose by a higher-than-expected 0.7% mom, beating expectations of 0.6%.

GBP

Sterling weakened overall on Monday, but particularly versus the dollar which soared after an upbeat Manufacturing report increased the possibility of a rate rise from the Federal Reserve, possibly even as soon as the summer.

The pound on the other hand weakened after its own Manufacturing report from Information group Markit showed PMI failing to meet expectations, after only reaching 52.0 when 52.5 had been forecast. The previous month’s result was 51.8.

The report suggested a lack of demand for U.K manufactured products overseas and an over-reliance on domestic demand was hampering growth in the sector.

The strong pound had acted as a ‘double whammy’ increasing cheap exports and decreasing U.K export’s competitiveness. All other things being equal this could be an incentive for the BOE to not tighten policy early, which would have the effect of strengthening the pound even further.

JPY

The yen continued to weaken on Monday versus the dollar, as mixed economic data from Japan and continued speculation that the Fed will not be able to avoid a rate hike this year, trading at 124.82 per dollar in the second half of the New York session.

The economic data from Japan painted a mixed picture with inflation and industrial production surpassing analysts expectations, while an improving labour market failed to boost consumer spending.

National core CPI climbed only 0.3% yoy in April – a sharp deceleration from 2.2% advance recorded a month earlier ( excluding last years sales tax hike). Nevertheless it was better than anticipated 0.2% gain. In addition Tokyo’s inflation data showed showed CPI inching higher to 0.2% in May sliding from 0.4% rise recorded in April.

Japan’s industrial production increased 1.0% in April from the previous month, beating forecasts for a 0.8% gain. Japan’s manufacturing now anticipate May output will increase 0.5% on month in May, up from previous forecst for a 0.3% decline.

The county’s employment picture brightened, as the seasonally adjusted jobless rate for April came in at 3.3% compared with expectations of 3.4%.

Nevertheless, consumer spending remained stubbornly weak, as it dropped 1.3% in April from the previous year. Given April was the month of the sales tax hike the previous year this surprised analysts.

“The data splashes cold water over optimistic views of consumer spending” Yasunari Ueno from Mizuho Securities said today.

USD

The dollar rallied on Monday after a key gauge of Manufacturing came out higher-than-expected, solidifying expectations that the Fed would move to raise interest rates before the end of the year.

ISM Manufacturing Index increased to 52.8 in May from 51.5 previously when an increase to only 52.0 had been expected. The New Orders Component of the Index, which is often viewed as a significant leading indicator for the economy increased to 55.8 from 53.5 a rise of 2.3%.

The Prices Paid index of the report rose a whopping 9 points from the previous April report, to reach 49.5 from 40.5 before, probably indicating more inflationary pressures building up in the economy – another Fed concern – whilst employment rose 3.4% to 51.7%.

Other data was mixed, although Construction Spending rose 2.2% mom in May, easily beating the 0.7% expected and the 0.5% previously.

Manufacturing PMI rose, but Personal Consumption Expenditure came out below expectations – registering a 1.2% rise yoy in April, from 1.3% previously, and 1.4% forecast.

Personal Spending was flat but Personal Income rose by an unexpected 0.4% in April.

EUR

Investors decided to look past positive data and sell the euro on Monday; exact reasons were unclear although the increasing risk of a Greek default was posited as one.

Investor concerns may have originated in a further flight of capital out of Greek Banks at the end of last week and an article penned by the Greek Prime Minister in the French paper Le Monde, in which he defiantly rejected creditor reform demands and threatened to ‘detonate’ a euro-area crisis, by refusing to meet demands in return for a cash bailout.

It appears the Greek government is preparing to ally itself to Russia and other BRICS countries as an alternative to the euro-zone if the relationship completely breaks down and there is a Grexit. It has already signed a pipe-line deal with Russia, and may be able to get funds from the BRIC bank.

On the data front Euro-zone Manufacturing PMI was relatively upbeat, with Spanish data the first to be released and showing the highest result for 8 years and almost all the other member states beating previous results except Germany, which slowed down from April.

German Inflation data was on the button – and E.U harmonized rose by a higher-than-expected 0.7% mom, beating expectations of 0.6%.

GBP

Sterling weakened overall on Monday, but particularly versus the dollar which soared after an upbeat Manufacturing report increased the possibility of a rate rise from the Federal Reserve, possibly even as soon as the summer.

The pound on the other hand weakened after its own Manufacturing report from Information group Markit showed PMI failing to meet expectations, after only reaching 52.0 when 52.5 had been forecast. The previous month’s result was 51.8.

The report suggested a lack of demand for U.K manufactured products overseas and an over-reliance on domestic demand was hampering growth in the sector.

The strong pound had acted as a ‘double whammy’ increasing cheap exports and decreasing U.K export’s competitiveness. All other things being equal this could be an incentive for the BOE to not tighten policy early, which would have the effect of strengthening the pound even further.

JPY

The yen continued to weaken on Monday versus the dollar, as mixed economic data from Japan and continued speculation that the Fed will not be able to avoid a rate hike this year, trading at 124.82 per dollar in the second half of the New York session.

The economic data from Japan painted a mixed picture with inflation and industrial production surpassing analysts expectations, while an improving labour market failed to boost consumer spending.

National core CPI climbed only 0.3% yoy in April – a sharp deceleration from 2.2% advance recorded a month earlier ( excluding last years sales tax hike). Nevertheless it was better than anticipated 0.2% gain. In addition Tokyo’s inflation data showed showed CPI inching higher to 0.2% in May sliding from 0.4% rise recorded in April.

Japan’s industrial production increased 1.0% in April from the previous month, beating forecasts for a 0.8% gain. Japan’s manufacturing now anticipate May output will increase 0.5% on month in May, up from previous forecst for a 0.3% decline.

The county’s employment picture brightened, as the seasonally adjusted jobless rate for April came in at 3.3% compared with expectations of 3.4%.

Nevertheless, consumer spending remained stubbornly weak, as it dropped 1.3% in April from the previous year. Given April was the month of the sales tax hike the previous year this surprised analysts.

“The data splashes cold water over optimistic views of consumer spending” Yasunari Ueno from Mizuho Securities said today.



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