US manufacturing figures outline slowdown of economic recovery, halting dollar rally
19/Apr/2013 • Currency Updates•
The euro increased slightly yesterday against the greenback, correcting the dismal drop from the day before due to rumours of an interest rate cut from the ECB, while the International Monetary Fund (IMF) cut its global economic growth forecast for 2013 to 3.3% from the 3.5% predicted in January.
The euro was also vulnerable after European Central Bank Governing Council member Jens Weidmann said on Wednesday that the bank could cut interest rates if economic data indicated that it was warranted. However, a Spanish bond auction showed a powerful demand causing the 10 year note yields drop to 4.612% from 4.898%. Lower yields mean higher confidence in the economic situation of the country.
Trading today is expected to remain light, but German PPI has been already released and is causing a fall in the euro, as concerns of an economic recovery from the most prominent economy in Europe is throwing signs of a slow recession.
Dollar retreated on Thursday after data released indicated the US economy is set for near term growth.
The Philadelphia Fed Manufacturing Index showed a slower pace increase with fewer orders causing managers to cut back on hiring and inventories. General index fell to 1.3 in April from 2.0 in the prior month. With any reading greater than zero showing expansion; however this reading was not as high as economists had forecast at 3.0.
New unemployment insurance claims released by the department of labour edged up for the second week of April. A rise by 4,000 last week to 352,000 above the 350,000 forecast causing the moving average to rise for the fourth week straight.
All eyes will now be firmly focused on the US GDP figures released on the 26th April which is forecast to show a 3% increase.
All the data released yesterday would indicate to many in the markets that the US economy still has far to travel and further stimulus by the Fed may need to be maintained for longer than expected.
A triple dip recession is a near certainty as retail sales fall after the coldest March for 50 Years. Sales in March were down 0.5 per cent on the same month in 2012. These retail sales figures follow the news on Wednesday that unemployment rose by 70,000 to a total of 2.56 million. Youth unemployment rose by 20,000 to 979,000. Continuing high inflation will also do nothing to aid economic growth, as official figures confirm inflation remained well above its two per cent target at 2.8 percent for March, with no sign of it easing any time soon.
This market data invariably set the tone of Mark Carney’s speech in Washington DC, where he echoed the sentiments of the market. Outlining that the UK is still a “crisis economy”. The UK is accompanied by the eurozone and Japan as the crisis economies. Conversely, Carney views the US as an economy that is breaking as a crisis economy. In summary Carney heaped praise on the US Federal Reserve for it’s policy of providing guidance to the financial markets and spelling out the likely path of interest rates, something British policymakers are due to consider in coming months.