Sterling fell to a three-week low against the dollar yesterday, erasing all the gains it had made since last month’s national election, after data showed the British manufacturing sector grew at a much slower pace than expected in May. The Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) rose to 52.0 in May from a downwardly revised 51.8 in April, but that was lower than the increase to 52.5 forecast by a poll of analysts. That added to the belief that the Bank of England is likely to keep interest rates lower for longer, an expectation that dragged down the pound. Sterling fell to $1.5198, its lowest in since May 7, and down from $1.5270 before the data was released.
The euro was under pressure yesterday, losing ground against the dollar as Greece remained deadlocked in negotiations with its creditors. Greece is due to repay €300m to the International Monetary Fund (IMF) this week, amid suggestions that the IMF may allow it to clump the payments into one at the end of the month. Renewed strength in the dollar came ahead of what is set to be an action-packed week for US markets. Investors will eye a raft of key data – culminating in Friday’s all-important nonfarm payrolls – for any further clues on an interest-rate hike by the Federal Reserve.
The dollar rose to fresh 12-and-a-half year highs against the yen this morning as upbeat data on U.S. manufacturing activity and construction spending bolstered expectations for higher interest rates. USD/JPY hit highs of 125.06, the most since November 2002 before pulling back to 124.61. The dollar was boosted after data showed that the Institute of Supply Management’s manufacturing index accelerated in May, as new orders and employment both rebounded. The ISM index of manufacturing activity was 52.8, up from 51.5 in April and ahead of forecasts for 52.0. Another report showed that U.S. construction spending rose to the highest level in six-and-a-half years in April, adding to recent signs that the economy is rebounding from a weak first quarter. The Commerce Department said construction spending jumped 2.2% to an annual rate of $1.0 trillion, the highest since November 2008. The greenback shrugged off data earlier in the day showing that U.S. consumer spending was unexpectedly flat in April.