Forex - Dollar weakens on surprise drop in US manufacturing ISM
The dollar softened further after the US manufacturing ISM indicator showed an unexpected contraction in activity in December, suggesting the US economic slowdown is broad-based. The ISM fell to 47.7 from 50.8 in November and against expectations for a small rise to 50.9. Both the new orders and production components fell below the 50 mark, indicating a reduction in activity. ‘The ISM is consistent with a recession not only in the factory sector but possibly the wider economy as well,’ said Paul Ashworth at Capital Economics. It is surprising because the US economic weakness is centred on housing and consumption and because the boost from strong overseas demand and the weaker dollar should be insulating the factory sector from the worst of the property market fallout. ‘In short, this is a big shock that greatly increases the chances of another interest rate cut at the end of this month particularly if, as we now suspect, December’s payrolls figures turn out to be equally as disappointing on Friday,’ Ashworth said. The data pushed the dollar down to 110.50 yen from 111.20 yen and allowed the euro to move back above the 1.4700 usd level. Elsewhere, the pound remained broadly weaker after a drop in the UK manufacturing PMI this morning. The figure for December dropped to 52.9 from November’s 54.3. Read more from Quote.com