US Dollar Mixed After Unexpected Drop In Manufacturing Data

Washington (Sept 1)  The dollar is currently turning in a mixed performance Tuesday afternoon, rising against the pound sterling, but falling against the Euro and the Japanese Yen. US economic data was also mixed this morning, with an unexpected decrease in the ISM manufacturing index, but a larger than expected increase in construction spending.

Activity in the US manufacturing sector unexpectedly grew at a slower rate in the month of August, according to a report released by the Institute for Supply Management on Tuesday, with the index of activity in the sector falling to its lowest level in over two years.

The ISM said its purchasing managers index dropped to 51.1 in August from 52.7 in July, although a reading above 50 indicates continued growth in the manufacturing sector. The decrease came as a surprise to economists, who had expected the manufacturing index to inch up to a reading of 52.8.

Reflecting a jump in spending on private construction, the Commerce Department released a report on Tuesday showing that total US construction spending reached its highest level in seven years in the month of July.

The report said construction spending climbed 0.7% to an annual rate of USD1.083 trillion in July from the revised June estimate of USD1.076 trillion in June. Economists had expected spending to rise by 0.6%.

Global economic growth is set to moderate and will likely be weaker-than-expected earlier due to sluggish recovery in advanced economies and a further slowdown in emerging economies, International Monetary Fund Managing Director Christine Lagarde said Tuesday.

"Overall, we expect global growth to remain moderate and likely weaker than we anticipated last July. This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America," Lagarde said in a speech at a university in Indonesia.

Further, Lagarde said Asia as a region is still expected to lead the global growth, but the pace is turning out slower than expected. She also warned of the risk that Asian growth may slow even further given the recent spike in global risk aversion and financial market volatility.

The Washington-based lender had lowered its global growth projection for this year to 3.3% in July. The projection for the next year was maintained at 3.8%.

The dollar dropped to an early low of USD1.1332 against the Euro Tuesday and has slipped back to around USD1.13 this afternoon, after a brief recovery.

Eurozone unemployment rate unexpectedly dropped in July to its lowest level in three-and-a-half years, adding to hopes that consumer spending would support growth amid low inflation. The unemployment rate fell to 10.9% in July, after holding steady at 11.1% in the previous two months, data from Eurostat revealed Tuesday. The figure was expected to remain at the 11.1% level for a fourth straight month.

Germany's unemployment declined more than expected in August, reports said citing data from the Federal Labor Agency on Tuesday. The number of unemployed declined by 7,000 in August from July. Economists had forecast a decrease of 4,000.

Germany's unemployment rate held steady in July, figures from Destatis showed Tuesday. The jobless rate came in at an adjusted 4.7% in July, the same rate as in the previous month. In the corresponding month last year, the rate was 5.0%.

Eurozone factory expansion slowed marginally in August, while the pace was estimated to have remained unchanged earlier, final data from Markit Economics showed Tuesday. The purchasing managers' index for the manufacturing sector dropped to 52.3 from 52.4 in July. In the preliminary report, released earlier, the PMI score was shown to have held steady at the previous month's level.

Germany's manufacturing sector registered its fastest growth in 16 months in August, final data from Markit showed Tuesday. The Markit/BME final manufacturing PMI rose to 53.3 in August from 51.8 a month ago. The initial score for August was 53.2.

The French manufacturing sector contracted more than initially estimated in August, final data from Markit showed Tuesday. The manufacturing Purchasing Managers' Index fell to 48.3 in August from 49.6 in July. This was below the flash score of 48.6 and was the lowest in four months.

The buck has extended its winning streak against the pound sterling to a sixth session Tuesday, rising to around USD1.5315 this afternoon, from around USD1.58 when the streak began.

British manufacturing expansion slowed in August, defying expectations for a modest improvement, survey figures from the Chartered Institute of Procurement & Supply and Markit Economics showed Tuesday. The purchasing managers' index fell to 51.5 from 51.9 in July. Economists had expected a score of 52.

UK mortgage approvals rose to a 17-month high in July, data from the Bank of England showed Tuesday. The number of mortgage approvals increased to 68,764 in July from 67,069 in June. It was the highest since February 2014, when it totaled 70,239 and also exceeded the expected level of 68,100.

The greenback is attempting to hold its ground around Y119.700 against the Japanese Yen this afternoon, after pulling back from around Y121.500 on Friday.

The manufacturing sector in Japan continued to expand in August, and at a faster pace, the latest survey from Nikkei showed on Tuesday, with a final PMI score of 51.7. That was slower than last month's preliminary reading that suggested a score of 51.9, although it was up from 51.2 in July.

Capital spending in Japan was up 5.6% on quarter in the second quarter of 2015, the Ministry of Finance said on Tuesday. That was well shy of forecasts for an increase of 8.8% and down from 7.3% in the first quarter.

Source: RTTnews