Euro Down On Manufacturing, Service Weakness
The euro has weakened against several major currencies today after the latest eurozone composite Purchasing Managers’ Index from Markit came in lower than expected.
Friday, July 24, 2015 - 00:00
The flash PMI for July fell to 53.7 from June’s final reading of 54.2, just behind the consensus estimate of 53.9. The slowing in growth came from both the manufacturing and services sectors, with the manufacturing PMI slipping from June’s 52.5 to 52.2 in July and the services PMI falling from 54.4. to 53.8. Despite this moderation in the pace of eurozone economic growth, the PMI remains close to June’s four-year high. Notably though, business expectations in the services sector fell to the lowest level so far this year, which could well be a fallout from the Greek crisis.
‘Although business confidence in the service sector hit the lowest so far this year, recent positive developments in relation to Greece suggest the pace of growth could pick up again in coming months,’ said Chris Williamson, Chief Economist at Markit. ‘The region should therefore enjoy growth of at least 1.5% this year providing there is no re-escalation of “Grexit” worries, which is of course by no means assured.’ EUR/USD fell 0.39% to 1.0941, while EUR/GBP slid 0.13% to 0.7070.
Data released overnight showed China’s manufacturing sector not only continues to contract, but the trend is deepening. The flash manufacturing PMI for July dropped to a worse-than-expected 48.2, down from June’s final reading of 49.4, marking the fifth successive month in which Chinese manufacturing activity has contracted. Worryingly, the forward-looking component of new orders has moved below the 50-mark and this suggests that recent measures by the Chinese government to stimulate growth are failing so far to re-ignite factory activity in the country.
China is a huge consumer of raw materials, and the report has therefore had a drag on commodity prices, which have already been in a rut. As a consequence, commodity currencies have generally declined today, particularly the Australian dollar, which weakened more than 1% against the US dollar. The Canadian dollar also fell against its US counterpart, USD/CAD strengthening 0.27% to 1.3071.
In contrast to the other PMI reports, US manufacturing is faring well. The July flash reading came in at 53.8, showing a faster pace of growth than the 53.6 that was measured at the end of June (53.4 mid-month). The result was slightly higher than expected and helped consolidate US dollar gains — the dollar index, a gauge of the dollar’s strength against a basket of six major currencies, rose 0.34%, holding near a three-month high as we approach the weekend.
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