The eurodollar remained range-bound against the pound on the first trading day of the week following the report of mixed German economic data. While the flash manufacturing PMI for August missed economists’ estimates by a significant margin, services PMI data was slightly better than forecasts.
The UK’s economic data was also mixed. The flash manufacturing PMI for August surpassed estimates, while services PMI data missed forecasts by a considerable margin. Overall, the EUR/GBP pair traded in a narrow range of between 0.8560 and 0.8590.
According to the data published by IHS Markit, German flash manufacturing PMI (purchasing managers’ index) declined to a six-month low of 62.70 in August, from 65.90 in July, and missed the reading of 65.10 anticipated by economists.
Likewise, the German flash manufacturing output index dropped to seven month low of 59 in August, from 63.70 in July.
Furthermore, flash services PMI inched lower to a two-month low of 61.50 in August, from 61.80 in July, but bettered the forecasts of economists who were expecting a decline in the reading to 61.
Overall, the German flash PMI composite output index hit a two-month low of 60.60 in August, from 62.40 in July. Despite the decline, the reading was considerably higher than the no-change threshold level of 50, thereby signaling a robust pace of growth.
Notably, component scarcity continued to weigh on factory production volumes. Specifically, manufacturing order book volumes grew at the slowest pace in six months, but remained robust by historical standards.
Across the private sector, employment rose for the eighth month in a row as increasing orders forced companies to increase their employee count. Notably, the pace of job creation reflected the second-quickest (July’s rate of job creation was the fastest) in the series history. Business confidence reached the second-highest level since the organization started publishing the data in July 2012.
Data published by IHS Markit indicated that the UK’s flash manufacturing PMI (purchasing managers’ index) hit a five-month low of 60.10 in August, following a reading of 60.40 in the prior month, but surpassed the reading of 59.50 anticipated by economists.
Also, the flash manufacturing output index declined to a six-month low of 54.10 in August, from 57.10 in July.
Furthermore, the UK flash services PMI (purchasing managers’ index) dropped to a six-month low of 55.50 in August, from 59.60 in July, and missed the reading of 59 anticipated by economists.
Overall, the UK’s flash composite output index fell to a six-month low of 55.30 in August, from 59.20 in July.
Both manufacturing and service sectors posted weaker recoveries, with the latter reporting the steepest drop in momentum since July. Fresh order growth slowed down a bit in August as robust export sales aided in negating a slower rebound in domestic demand. A surge in fresh business volumes paved the way for another increase in backlog, even though the recent increase in backlogs stood the weakest since April.
August data reflected the sharpest increase in private-sector job creation since the organization started publishing the data in 1998. Despite a slowdown in output growth during August, service providers hinted at a strong and expedited increase in employment numbers. The recent rise in employment levels was the most robust since the data was initially published in July 1996. Furthermore, the recent survey reflected a revival in business sentiment to the highest level since May.
According to the Confederation of British Industry, the industrial order expectations index inched higher to 18 in August, from 17 in July, and surprised analysts who were anticipating a decline in the reading.
The poll of 262 manufacturers identified that output rose in 13 out of 17 sectors, with growth led mainly by the food, drink & tobacco sub-sector. The slowdown in headline output growth, compared with the prior month, was led mainly by the motor vehicles sub-sector.
Looking forward, manufacturers anticipate output growth to increase moderately (26%) in the forthcoming three months. Specifically, the expectations for output price growth stood near a 30-year high posted in June. Output growth in the three months ended August eased to 22%, from 37% in July, but stood higher than the long-term average of 3%.
Total order books increased moderately to 18% in August, from 17% in July and above the long-term average of -14%. However, export order books weakened to 16% in August, from 7% in July, but remain almost in line with the long-term average.
Stock adequacy declined to -14%, from -11%, the weakest since April 1977, primarily due to scarcity in electronic and plastic goods sub-sectors.
The mixed economic data is expected to keep the EUR/GBP pair range-bound with a slight bearish bias in the short term.
The historical price chart reveals that the EUR/GBP money pair is weakening after facing resistance at 0.8590. The following minor support is expected only near 0.8530. The stochastics indicator is descending towards the bearish zone, and we are anticipating the currency pair to remain in a downtrend in the short term.
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