Among the highlights in today’s European session were flash Markit PMI estimates out of the eurozone and the US, Canadian inflation figures and US new home sales data. Beyond economic releases, the pound maintained yesterday’s momentum on rising expectations of a rate hike by the Bank of England.
Flash eurozone PMI numbers for the month of June showed the manufacturing sector performing strongly and the services sector surprising to the downside. Specifically, the manufacturing PMI number came in at the more than six-year high of 57.3, exceeding forecasts for a reading of 56.8 and May’s 57.0. The respective figure for the services sector stood at 54.7, the lowest since February of this year and below the 56.2 projected by analysts as well as the 56.3 from the previous month. The composite PMI, which blends the two sectors, also fell to its lowest since February, reaching 55.7 and failing to meet expectations for a reading of 56.5 and May’s 56.8.
Despite the not so strong composite and services readings, overall the numbers are suggesting that the euro area growth rate would reach 0.7% quarter-on-quarter during the second quarter of the year, its highest since 2015. The euro posted some gains relative to the dollar as the data hit the markets, rising to $1.1187, its highest for the day at the time. Those gains were short-lived though. Euro/dollar gained momentum later in the day, rising above the 1.12 handle. In afternoon European trading hours, the pair was up 0.5% compared to where it started the day.
Weaker inflation figures led the loonie to reverse gains it made versus the US dollar earlier in the day on the back of oil prices picking up. In particular, inflation rose by 0.1% month-on-month in May, below the 0.2% expected and April’s 0.4%. On an annual basis, CPI rose by 1.3%, negatively comparing to the projected 1.5% and the 1.6% from the previous month. Annual core inflation, which strips out volatile items in its calculations and which is closely watched by the Bank of Canada, fell to 0.9%, its lowest in almost twenty years. April’s respective figure stood at 1.1%. The BoC’s target for inflation is 2% annually and today’s numbers might pose a challenge to the Bank’s recent rate-hike talk, which significantly boosted the loonie.
In terms of reaction in the forex markets to Canadian inflation numbers, dollar/loonie surged, rising to as high as 1.3296 within the first few minutes of data release. The pair was trading at 1.3219 before. As the European trading session is getting closer to its end for the day, dollar/loonie is up 0.3%.
Turning to data out of the US released later in the day, the June flash manufacturing PMI was released at the nine-month low of 52.1. Moreover, this was at a negative surprise compared to the 53.0 expected and below May’s 52.7. The services flash PMI was also below expectations, standing at the three-month low of 53.0. Dollar/yen fell as the data hit the markets, though it quickly recovered.
Other data out of the US pertained to new home sales during May. Those rose by a more-than-expected 2.9% to reach 610,000 units from April’s upwardly revised 593,000 (from 569,000 before). Dollar/yen experienced volatility upon data release, showing no clear direction. It last traded at 111.26, slightly down on the day. The dollar index looks set to finish the day lower and was last down 0.3% on the day.
Sterling continued gaining versus the dollar today after Kristin Forbes, the Bank of England Monetary Policy Committee (MPC) member who is to complete her term at the MPC by the end of the month, urged fellow MPC members to raise rates immediately. Pound/dollar was last up on the day, reaching a three-day high of 1.2744 at its highest.
A weaker US currency spurred demand for gold which is on track for its third straight day of gains. At its highest for the day, the precious metal hit a one-week high of $1258.73 an ounce. WTI and Brent crude were trading at $42.94 and $45.49 a barrel, up 0.47% and 0.60% on the day respectively.
FOMC voting member Jerome Powell will be giving a speech at a Federal Reserve Bank of Chicago Symposium at 18:15 GMT.
