Dollar falls as US manufacturing sector shows surprise contraction in August

Emma Haslett
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Rain Continues In New York City
Dark skies: The US manufacturing sector wasn't as strong as expected (Source: Getty)

We've missed the hat trick: after this morning's purchasing managers' indexes (PMIs) for manufacturing in the Eurozone and UK both beat expectations, this afternoon's US equivalent was a rather damper squib, with the country's factories sector posting a surprise contraction in August.

The Institute of Supply Managers' PMI for economic activity in the manufacturing sector fell to 49.4 in August, down from 52.6 in July. Any figure below 50 denotes a contraction.

The figure was driven by a fall in the number of new orders, which fell 7.8 points to 49.1, while production fell 5.8 points.

That pushed the dollar down 0.1 per cent against the euro, to €0.8955. Earlier today, it had hit a peak of €0.8986.

Meanwhile, Markit's PMI for the US manufacturing sector still showed growth in the sector - although the figure missed expectations. PMI for August hit 52.0, down from 52.1 in July. Economists had expected the figure to remain at 52.1.

"The overall rate of expansion remains only modest, and the upturn fragile," said Chris Williamson, Markit's chief economist.

"Weak domestic demand remains a drag on order books. Concerns about the outlook have also resulted in a marked reduction in the rate of job creation.

“There’s anecdotal evidence to suggest that this at least in part reflects a slowing in the economy in the lead up to the presidential election, meaning there’s scope for growth to revive later in the year. In the meantime, the overall sluggish pace of expansion signalled by the survey, and the slacking of inflationary pressures, provides support to those arguing that interest rates should remain on hold.”

Connor Campbell, financial analyst at Spreadex, agreed.

"[The figure] potentially damages the case of those in the Fed looking for a rate rise in September," he said.

"Tomorrow, however, is August’s non-farm payrolls reading, a figure that will carry far more clout with the central bank’s members than the manufacturing survey.

"The proximity, and importance, of that jobs report perhaps explains why the Dow Jones took the PMI news as a firm negative rather than a hike-delaying positive, the index falling 0.1 per cent after the bell."

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