Good morning.

The dollar doldrums continue as USD basket hits 15-month low

Reflecting a market that doesn’t believe the Fed will meet its forecast of two rate hikes this year, the USD continued to slide yesterday and the Dollar Index (an index that tracks the value of the dollar against a basket of other currencies) fell for the seventh consecutive session. The dollar’s weakness is most apparent against both the Japanese yen and of course the euro, which sits close to 2015’s highest levels of 1.16. The Fed’s predicted rate path is under threat from a number of quarters; lethargic growth and inflation, subdued consumption and most recently a confirmation from Indiana that Donald Trump has become the presumptive Republican Presidential nominee, after Ted Cruz dropped out of his campaign early this morning. This divergence of expectations on rate hikes between the market and the Federal Reserve seems to be based on the continued strength of job gains in the US, but this really needs to be allied with sustained and strong wage growth before the market will begin to believe that rates could be 1% by December – an outcome that’s only priced in with a 17% chance at present.

UK’s stagnant manufacturing sector stumbles further, post-EU referendum recovery looking more unlikely

Yesterday’s UK Manufacturing PMI showed shrinking output for the first time in three years across April, showing a poor start to Q2 growth. Those looking forward to a recovery in business confidence and output after the uncertainty of June 23rd’s EU referendum are likely to be disappointed – data shows the manufacturing sector alone has shed close to 20,000 jobs in the three months from February. The lost jobs mean wages and output lost that are unlikely to be reinstated regardless of the status of the UK’s EU membership. On today’s political calendar, David Cameron is due to appear in front of a House committee – an event that’s unlikely to be passed over by either the Remain or Leave camps today.

Eurozone growth still ticking along

April’s composite PMI from the Eurozone is due today (a wrap-up of the services, manufacturing and construction PMIs released over the last few days) and is estimating Eurozone growth to have remained mildly positive, with strong contributions from Germany, Spain and Italy, but a continued lack of performance from France, Greece and a few others. This two-speed Eurozone economy was highlighted in yesterday’s European Commission downgrade to growth estimates, placing the blame on slow global economic growth and low commodity prices counteracting the most aggressive monetary regime in the union’s history. None of this is particularly surprising, but the Commission’s pessimism is another sign that the recovery remains far slower than hoped by the powers that be.

Have a great day.