Dollar Suffers PMI Hangover

GBP: Data and Pill fuel rebound

The Pound rebounded by almost 1% versus the Dollar yesterday, thanks to the combined effect of a weaker USD, supported risk sentiment, better-than-expected UK PMIs and some relatively hawkish comments by Bank of England Chief Economist Huw Pill. Despite the manufacturing PMI survey dropping below 50.0 in April, the UK service sector showed good momentum (54.9), carrying the composite index to a one-year high. The broadly positive signals for growth have to be weighed, however, with data on the UK budget deficit exceeding expectations to an extra ￡12.4bn over the fiscal year. This inevitably curbs expectations of another tax-cutting event before the election and has a net negative impact on Sterling over time as the risks to fiscal policy-led inflation fade. GBP/EUR is trading around €1.1626 and we could see more pressure for GBP/EUR in the short term as both the UK calendar and BoE-speak go quiet.

Data 11.00: CBI Industrial Order expectations -16 from -18.

EUR: PMIs not moving ECB pricing

For once, US-Eurozone divergence in data has come to the benefit of EUR/USD, which is attempting consolidation at $1.0700 this morning. As noted above, hard data (inflation and employment above all) has been the real drag on the pair so far, so caution is warranted when it comes to rallies prompted by activity surveys like PMIs. This morning, the German Ifo will be in focus, with consensus expecting an improvement across all three main surveys (business climate, current assessment and expectations). Good figures could cement more upbeat expectations on Eurozone growth, although the chances that this materially impacts European Central Bank pricing are low.

Data: German Ifo Business Climate expected 88.9 from 87.8.

USD: Drop does not look too sustainable

The Dollar nursed its wounds on Wednesday following big tumbles against the Euro and Sterling, but the Yen remained mired near 34-year lows even as Japanese officials stepped up intervention warnings. The Dollar took a hit yesterday as US S&P Global PMIs came in weaker than expected. The composite index dropped to 50.9, with manufacturing moving back into contraction (49.9) and services slowing to 50.9.

Data 130.30: Core durable Goods Orders m/m expected unchanged 0.3% & Durable Goods Orders m/m expected 2.5% from 1,3%.