We’re into a New Year, but the dollar has continued on the same trajectory that it enjoyed in 2014, strengthening to a four-and-a-half-year high against the euro, despite some lackluster indications for the US manufacturing sector. In 2014 the dollar advanced against all of the major currencies and it added sharply to those gains today, rising more than 1% against the British pound and the Canadian dollar.
By Peter Martin
Saturday, January 3, 2015
There has been manufacturing data released for many major economies today, none of it too encouraging. Eurozone manufacturing growth remains softer than in the US or the UK, though the latter two showed slowing in December. The manufacturing PMI for the euro area increased to 50.6 in December, below expectations and the mid-month flash indication, and improving only from a soft level, November’s barely-growing 50.1.
Perhaps of most concern to the ECB is the price data contained within the report: input costs descended steeply and wholesale prices shrunk for a fourth straight month. Deflation seems a very real risk for the ECB therefore and expectations that the central bank could be ready to swing soon for full-blown QE were bolstered today by quotes in Germany’s Handelsblatt newspaper from ECB President Mario Draghi, describing the eurozone recovery as ‘fragile and uneven’ and warning that too-low inflation meant a risk of failing to fulfil the ECB’s price-stability mandate.
‘We are in technical preparations to adjust the size, speed and compositions of our measures early 2015, should it become necessary to react to a too long period of low inflation,’ Mr Draghi was quoted as saying. EUR/USD fell 0.80% to 1.2007.
The UK manufacturing PMI fell to 52.5 for last month from November’s 53.3, missing estimates that had called for growth in the sector to accelerate. Production and new orders improved, though, and the decline in the headline level was mainly a result of softness in prices. With inflationary pressures non-existent in the UK outside of house prices, it seems, the Bank of England would appear to be in no hurry to tighten. By mid-afternoon in New York, GBP/USD was down 1.49% at 1.5352, a 16-month low.
US manufacturing tailed-off a little at the end of 2014, according to the ISM’s manufacturing index, which eased to 55.5 in December from a very strong 58.7 in November. Markit’s manufacturing PMI also shows growth slowing, albeit at a far less pronounced pace. The index slid to 53.9 for the final December reading, down from 54.8 in November. In a separate report, construction spending was shown to have decreased 0.3% in November, after a 1.2% increase in October.
Despite hitting a final bump at the end of the year, the manufacturing sector remains comfortably in growth territory, consistent with the wider economy that continues to tick over nicely. Though today’s data will not have shortened the expected time-frame for a first Fed rate hike, it will have done nothing to dent anticipation of US tightening ahead of the other major central banks.
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