Bloomberg News

Dollar Gains as Manufacturing Report Boosts U.S. Outlook

May 01, 2012

The dollar rose from a four-week low against the euro after a gauge of U.S. manufacturing unexpectedly advanced in April, easing concern the economic recovery is flagging and damping bets the Federal Reserve will introduce more stimulus.

The greenback climbed against the yen as the data highlighted a divergence between U.S. economic performance and that of Europe, where reports over the past week showed the U.K. and Spain have fallen into recession. Australia’s dollar slid against all of its major peers after the nation’s central bank cut interest rates more than forecast. The pound fell after U.K. factory growth slowed.

U.S. “manufacturing had been pointing to one of the stronger parts of the economy in the recovery, and it’s a good sign that we’re getting another decent number,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “It’s something that keeps us constructive on this whole North America-European divide. This is showing that there is some distinction among the growth areas.”

The U.S. currency gained 0.1 percent versus the euro to $1.3224 at 11:22 a.m. New York time after falling earlier to $1.3284, the weakest level since April 3. It strengthened 0.5 percent against the yen to 80.19. Europe’s 17-nation currency appreciated 0.4 percent to 106.04 yen.

Factory Index

The Institute for Supply Management’s factory index rose to 54.8 in April from 53.4 a month earlier, the Tempe, Arizona- based group’s report showed today. Economists in a Bloomberg survey forecast a decline to 53. Readings greater than 50 signal growth.

The dollar reversed an earlier drop to 79.64 yen, the lowest level since Feb. 21, as the data reduced bets the Fed will take more action to promote economic growth.

While the central bank refrained at a two-day meeting last week from new actions to boost the economy, Chairman Ben S. Bernanke said it’s “prepared to do more” if necessary. The Fed bought $2.3 trillion of bonds in two rounds of quantitative easing from December 2008 to June 2011 to stimulate the economy through lower borrowing costs.

Mexico’s peso rose the most among the dollar’s 16 most- active counterparts tracked by Bloomberg, and Canada’s dollar also advanced after the ISM data. The U.S. is the biggest trading partner of both nations.

The peso strengthened 0.9 percent to 12.8946 per dollar, and the Canadian currency advanced 0.3 percent to 98.39 cents to the greenback.

European Manufacturing

Manufacturing in the euro region shrank in April, according to a Markit Economics report last week. The London-based firm said a composite index for the area based on a survey of manufacturing and services purchasing managers dropped to 47.4 in April from 49.1 in March. A purchasing-manager index of German manufacturing fell to 46.3 for April, from 48.4 in March.

Sterling weakened versus the dollar after a report based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply showed U.K. factory output fell to 50.5 last month from a revised 51.9 in March. Economists surveyed by Bloomberg News predicted 51.5. The survey followed data last week showing Britain’s economy re-entered a recession last quarter.

The pound declined 0.1 percent to $1.6219. It was little changed at 81.53 pence per euro after falling as much as 0.5 percent. Sterling appreciated yesterday to 81.23 pence, the strongest since June 2010.

‘Long Way’

“The PMI data clearly weighed on sterling,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There’s some clear profit-taking in sterling, as it’s come a long way against both the euro and dollar. The numbers leave scope for economists to question the depth of last week’s GDP data.”

A report yesterday showed Spain’s gross domestic product fell 0.3 percent in the first quarter, the same as in the previous three months, marking the nation’s second recession since 2009.

The U.S. economy grew by 2.2 percent in the first three months of the year, a report showed last week.

The Aussie dollar dropped for a second day against the greenback after the Reserve Bank of Australia lowered its overnight cash rate target to 3.75 percent from 4.25 percent, the deepest cut in three years. Two of 29 economists surveyed by Bloomberg News predicted the move, while the other 27 forecast a quarter-percentage-point reduction to 4 percent.

The Australian currency slid 0.8 percent to $1.0346 and touched $1.0305, the lowest level since April 24. It depreciated 0.3 percent to 82.96 yen and touched 82.11 yen, the weakest since Feb. 7.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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