Euro slips as manufacturing activity contracts more than expected
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The dollar gained ground versus most rivals Thursday, as investors braced for a closely-followed report on U.S. manufacturing activity.
The dollar index DXY +0.34% , which tracks the greenback against a basket of six rivals, rose to 74.371 from 74.162 in North American trade late Wednesday.
The Institute of Supply Management’s August manufacturing index is expected to slip to 48.5% from a reading of 50.9% in July, according to a MarketWatch survey of economists. A reading below 50% would signal that the activity in the sector contracted last month.
Hopes for a stronger reading were inspired by the Chicago-area purchasing managers index Wednesday, which posted an August reading of 56.5% versus expectations for 53%. Chicago PMI was at 58.8% in July.
“Market focus remains on global data releases and investors will be encouraged by yesterday’s U.S. data, which generally surprised to the upside,” said Chris Walker, currency strategist at UBS.
Ahead of the ISM data, however, investors will pay close heed to an auction of Spanish government debt. The nation’s Treasury plans to sell between 3 billion and 4 billion euros ($4.3 billion to $5.7 billion) of new five-year benchmark bonds.
The European Central Bank has been buying Spanish and Italian government bonds on the secondary market this month as part of an effort to contain the euro-zone sovereign debt crisis. An Italian auction earlier this week produced disappointing demand, analysts said.
The euro EURUSD -0.54% extended a decline versus the U.S. dollar to change hands at $1.4298, down from $1.4369 late Wednesday, after the purchasing managers index for the euro-zone manufacturing sector posted a steeper-than-expected August decline, heightening fears the region could slip back into recession. Read Market Pulse on euro-zone manufacturing PMI.
The British pound GBPUSD -0.17% traded at $1.6218, down from $1.6247 as traders awaited U.K. manufacturing PMI data.
The U.S. dollar traded at ¥76.90 versus the Japanese yen, up from ¥76.58 on Wednesday.
“The market continues to find fairly solid support around the major lows around the ¥76.00 area, and while this holds we could well see further gains,” said Michael Hewson, an analyst at CMC Markets. “However, the lack of any rebound in U.S. 10-year bond yields 10_YEAR -1.08% is limiting the dollar’s upside here.”
William L. Watts is a reporter for MarketWatch in Frankfurt.
