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European Session – Dollar falls after ISM non-manufacturing PMI data show weak job sector

The focus of the markets today was on surveys assessing the services sector activity in several countries.

First, all eyes were on Europe. The final services PMI index for the whole Eurozone came in at 53.3 in February, down from 53.6 in January, its lowest level since January 2015. The final Eurozone PMI composite for February was slightly stronger than originally reported at 53.0.

The euro traded a little firmer against the dollar today, advancing throughout the European session to rise back above the $1.09 level.

The UK services PMI fell to its lowest in three years, raising concern that Britain’s recovery from the financial crisis is losing momentum. The PMI index came in much weaker than expected and declined to 52.7 in February from 55.6 in January. The forecast was for a modest drop to 55.1.

The disappointing UK data only briefly halted sterling’s rise against the dollar. Since the beginning of this week, the pound has been staging a steady recovery and moving off multi-year lows below $1.40 after being hurt by Brexit fears. Cable rose into the $1.41 handle today to reach a more than one week high.

Following the UK services PMI, focus turned to the US ISM Non-Manufacturing PMI which came in at 53.4 versus a 53.2 estimate. What attracted more attention was the employment component of the report which showed a decline in the employment sector for the first time in two years, as the index fell to 49.7 from 52.1 a month earlier. This does not bode well for the nonfarm payrolls report due on Friday.

Meanwhile, today’s US initial jobless claims data showed that 278,000 Americans had applied for unemployment benefits last week, which was an increase from the prior week’s figure of 272,000 claims. Expectations were for a slightly better report at 270,000 claims.

The dollar fell against the yen after the report but fell further when the ISM data were released. The greenback dropped below 113.60 yen. Earlier in the day, it was above 114 yen.

The main risk for the dollar will be tomorrow’s nonfarm payrolls data which is expected to show 195,000 jobs added to the US economy in February compared to January’s figure of 151,000. The main focus though will be on wage growth data.

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