Sterling and Euro both weaker vs USD following release of UK CPI-inflation (April) and preliminary Eurozone manufacturing PMI data for May.
UK headline CPI-inflation fell to 2.4% yoy from 2.5% in March and perhaps more importantly core CPI-inflation down to a 13-month low of 2.1% yoy from 2.3% yoy in March. Analysts had been too optimistic in expecting broadly stable inflation readings. Market pricing prior the data release was for a 46% probability of 25bp rate hike at the Bank of England’s August policy meeting but that has edged lower. Weak UK economic activity and diminishing inflationary impact of Sterling depreciation may well in coming months further lower CPI-inflation towards the BoE’s 2% target. BoE would like to hike rates, however, the data releases are not playing ball and a rate hike before year-end is anything but a done deal.
Eurozone manufacturing PMI fell to 55.5 in May from 56.2 in April and above 60 in late-2017. Manufacturing PMI data tend to correlate quite well with GDP growth suggesting that Eurozone GDP growth has not risen much (if at all) in Q2 from 0.4% qoq in Q1. The loss of economic momentum in recent months has been blamed on “one-offs”, including bad weather, strikes, timing of Easter, public holidays etc…But that sounds like a copout. Economic growth slowdown is broad-based (including in Germany) and real (even if quite moderate) and makes the US growth story (and Dollar) stand out that much more.
