Greenback Tanks After Poor ISM Data

USD

The dollar fell dramatically on Monday after data from a leading economic indicator - the ISM survey - presented an unexpected fall in manufacturing activity in May. ISM Manufacturing fell to 49.0 from 50.7, when it had been expected to remain at 50.7. ISM Prices Paid fell to 49.5 from 50.0, when also no change had been expected. The employment component of the survey also showed weakness, leading to fears of a general fall in employment. Other data showed the Markit U.S PMI rose to 52.3 from 52.0. However, the timeliness of the ISM trumped other considerations. There was also Fedspeak from Yellen speaking on Regulation in Shanghai and non-voting member Williams speaking in Stockholm. William's, who is a known advocate of tapering reiterated his stance, saying that he there were continued good signs on jobs he would see an adjustment by the summer, with the possibility of ending QE altogether by year-end. Yellen didn't comment on monetary policy, preferring to focus on the risks of unregulated aspects of banking such as the shadowy world of short-term liquidity funding.


EUR

The euro traded mixed on Monday - rising versus the dollar, but falling to the pound and yen. On the data front, the eurozone Manufacturing PMI in May rose to 48.3 from 47.8, and German PMI to 49.4 from 49.0. It was expected that both would remain unchanged. The single currency was supported by the fact that all 4 of the leading eurozone economies showed growth, with French and Italian PMI's also increasing – the first to 46.4 from 45.5 and the later to 47.3 from 45.5. This was some relief after Friday's unemployment figures showed a new high record of 12.2%. Commentary from ECB's Draghi in Shanghai was overall quite positive, saying that despite “the situation remaining challenging,” the “baseline scenario remains one of gradual recovery.” He did not touch on the sensitive subject of 'negative rates' or indicate the likelihood of such a radical idea being implemented.


GBP

The pound rose on Monday after data showed growth in the U.K. manufacturing sector. May Manufacturing PMI showed an unexpected rise to 51.3 from an upwardly revised 50.2 in April, when a modest 1 basis point rise was all that had been expected. This dramatically reduced expectations that the BOE would institute more QE at their next rate meeting, despite 3 members (including Governor King) voting for more at the May meeting. The Manufacturing PMI will be followed by Construction PMI tomorrow, and the Services PMI on Thursday. Construction PMI is expected to improve by 2 basis points to 49.6, and Services by 4 basis points to 53.2. Given that normally manufacturing figures are lower than services, a strong result on Thursday could see a continuation for the pound higher.


JPY

The yen rose strongly on Monday, making headway against all major currencies. A combination of factors seemed to help propel it higher, but the poor ISM results in the U.S weakened the dollar. The recent upbeat inflation data form Japan which showed the current level of stimulus seems to be working was another factor. Analysts also sighted profit-taking on overbought dollar positions may also have impacted. On the data front, Capital Spending in Q1 fell less-than-expected to -3.9% from -8.7% when a fall to -5.5% had been expected. Spending excluding Software also recovered to -5.2% from -5.4% previously, when -7.2% was recorded in the previous quarter. Other data showed a -7.3% fall in Vehicle Sales and Tuesday will see the release of Labour Cash Earnings y/y in April which could also affect monetary policy expectations.