Forex - Euro softer after dip in euro zone manufacturing PMI

Forex - Euro softer after dip in euro zone manufacturing PMI

	Published : Thu, 01 Feb 2007 11:55 By : Agencies Print this Story

LONDON (AFX) - The euro softened after news that manufacturing growth in the area eased to a 11-month low in January.

The PMI (purchasing managers' index) iindicator dropped to 55.5 in January from 56.5 in December. Analysts were expecting a much smaller dip to 56.4.

A look at the sub-indices revealed a mixed picture, analysts said, with output growing at a slow pace but employment rising strongly.

'The immediate reaction, particularly after yesterday's benign January inflation data raised doubts over future rate hikes, is to say the PMI should be euro negative,' said Stuart Bennett at Calyon, as both the output and new orders indicate a softer outlook for production.

However, the improving labour market should continue to support consumption and growth, while both input and output prices also rose strongly.

'This implies that the European Central Bank remains on course to hike rates in March, and in our opinion it would be premature to rule out a further hike in the second quarter,' Bennett said.

Market-watchers noted that downward pressure on the euro kicked in mostly after the publication of a very strong UK manufacturing PMI.

This indicator surprised on the upside, rising to 52.8 in January from 52.0 in December, whereas analysts were expecting a decline to 51.7.

Economists pointed to strong components for the input and output prices as the most significant elements.

'The rise in the prices charged index will heighten the Bank of England's concern that a growing number of manufacturers are currently seeking to raise their prices in order to rebuild their margins,' a fact also seen in other reports this month, said Howard Archer at Global Insight.

Meanwhile, the dollar had already started the day slightly weaker after the Federal Reserve last night kept its interest rates unchanged and adopted rhetoric which was less hawkish than expected.

Analysts noted that it downgraded its depiction of the inflation outlook, using the words 'improved modestly' from the previous use of 'elevated'.

'The dollar remained under pressure as the market was expecting a more hawkish tone from the Fed,' said foreign exchange strategists at BNP Paribas, who add that risk for the dollar remains to the downside ahead of the US jobs data due tomorrow.

The payrolls for January are expected to a 150,000 increase, compared with 167,000 the previous month.

'A weak number should see the euro break above 1.3050 against the dollar, the BNP strategists wrote.

London 1030 GMT Singapore 0730 GMT

US dollar

yen 120.56 dn from 120.72

sfr 1.2452 dn from 1.2457

Euro

usd 1.3004 dn from 1.3013

yen 156.77 dn from 157.14

sfr 1.6192 dn from 1.6215

stg 0.6620 dn from 0.6630

Sterling

usd 1.9642 up from 1.9623

yen 236.81 dn from 236.91

sfr 2.4458 up from 2.4442

Australian dollar

usd 0.7755 up from 0.7742

stg 0.3948 up from 0.3945

yen 93.499 dn from 93.510

carlo.piovano@thomson.com

cp/ss

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