Dollar higher on upbeat manufacturing data and rising yields

Market Review - 02/04/2019  00:03GMT  

Dollar higher on upbeat manufacturing data and rising yields

The greenback erased its initial losses and ended the day higher against majority of its peers on Monday on the back of upbeat ISM manufacturing data together with rising U.S. Treasury yields. Earlier, dollar dropped at New York open due to downbeat U.S. retail sales data. Elsewhere, sterling fell in late New York after UK parliament failed to find a majority on alternative Brexit plans.  
  
Reuters reported the U.S. Commerce Department said on Monday retail sales dropped 0.2 percent as households cut back on purchases of furniture, clothing, food and electronics and appliances, as well as building materials and gardening equipment. Data for January was revised higher to show retail sales increasing 0.7 percent instead of gaining 0.2 percent as previously reported. Economists polled by Reuters had forecast retail sales rising 0.3 percent in February.   
The U.S. Institute of Supply Management said its manufacturing purchasing managers' index rose to 55.3 in March from 54.2 the previous month. February's reading had been its lowest level since November 2016. Economists had forecast a reading of 54.5.  
  
Versus the Japanese yen, dollar went through a roller-coaster ride. Although dollar initially gained to 111.19 in Asian morning on upbeat China PMI data which were released over the weekend, price briefly fell to 110.82 at New York open after downbeat U.S. retail sales data. However, the pair found renewed buying and rallied to an 11-day high at 111.44 on robust ISM data and rising U.S. Treasury yields.  
Reuters reported the official Purchasing Managers' Index (PMI) rose to 50.5 in March from February's three-year low of 49.2, marking the first expansion in four months, according to data released by the National Bureau of Statistics (NBS) on Sunday. The 50-mark separates growth from contraction on a monthly basis.   

Analysts surveyed by Reuters had forecast the manufacturing gauge would pick up slightly to 49.5, as factories ramped up production after long Lunar New Year holidays in February and rebuilt inventories ahead of a seasonal pickup in activity in spring.  
Reuters reported growth in China's services industry quickened in March, an official survey showed on Sunday, offering some respite for a slowing economy.
The official non-manufacturing Purchasing Managers' Index (PMI) rose to 54.8 in March from 54.3 in February, well above the 50-point mark that separates growth from contraction.  
  
The single currency went through a hectic session. Euro rose in tandem with sterling from 1.1215 (Reuters) in New Zealand to session highs at 1.1250 in European morning before retreating to 1.1228 after release of soft euro zone inflation data. Despite rebounding to 1.1247 at New York open, price tumbled to a 3-week low of 1.1204 on dollar's broad-based strength.  
Reuters reported euro zone inflation unexpectedly slowed in March, adding to the pressure on the European Central Bank (ECB) as it battles an economic slowdown which threatens to undo years of stimulus.  
Headline inflation in the 19 countries sharing the euro slowed to 1.4 percent in March from 1.5 percent a month earlier, short of market expectations for a steady rate and also well below the ECB's target of almost 2 percent.  
In a more worrying sign, a closely watched underlying inflation figure that excludes volatile food and energy prices, slowed to 1.0 percent, its weakest reading since April 2018.  
  
The British pound went through a volatile session. Although cable initially fell to 1.3010 at Asian open, price found renewed buying and rose to 1.3124 in European morning on upbeat UK manufacturing PMI data before retreating to 1.3082 in New York morning. However, the pair then rallied again to session highs at 1.3150 on hopes of a 'softer' Brexit before easing before dropping sharply to 1.3030 as UK parliament failed to find a majority on alternative Brexit plans.  
Research firm IHS Markit said its UK manufacturing purchasing managers' index rose to 55.1 in March, surprising economists who had forecast a drop to 51.0. That was its strongest level in the last 13 months.  
  
In other news, Reuters reported it is unlikely British Prime Minister Theresa May will hold a so-called meaningful vote on her Brexit deal on Tuesday, a government source said.   
May's deal was rejected for a third time on Friday but government ministers have said it is still an option and she is expected to try one last roll of the dice by bringing it back for a vote this week.   
  
On the data front, Reuters reported a weakening global economy, risks linked to Britain's possible departure from the European Union without a deal and trade disputes pushed activity in Germany's manufacturing sector to contract at its fastest rate since July 2012, a survey showed on Monday.  
Markit's Purchasing Managers' Index (PMI) for manufacturing, which accounts for about a fifth of the economy, fell to an 80-month low reading of 44.1, down from 47.6 in February and lower than the flash reading of 44.7.  
  
Data to be released on Tuesday :  
  
New Zealand NZIER business confidence, GDT price index, Australia building permits, RBA interest rate decision, Swiss CPI, U.K. Markit construction PMI, EU producer prices, and U.S. durable goods, durables ex-transport, durables ex-defense, redbook, ISM New York index.