Euro Strengthens On Central Bank's Action

The pound is mixed this morning, gaining against the dollar, but consolidating against the euro after report showed that UK manufacturing sector contracted in November.  The PMI Manufacturing index fell to 47.6 after reaching 47.8 in October. British manufacturers are suffering as the sovereign debt crisis jeopardizes the outlook for exports in Europe, UK’s largest partner, and as global economy cools. The Office for Budget Responsibility cut its 2012 economic growth forecast to 0.7% from 2.5% this week and BoE Governor Mervyn King said the UK is “increasingly threatened” by the crisis in Europe. Expect for the pound to remain volatile against its major rivals as PMI Construction is the only release scheduled for the reminder of the week.  

The euro gained against most of its major rivals after world’s largest central banks pledged yesterday to lower the cost of emergency dollar loans to banks in a coordinated move to ease liquidity strains. The single currency benefited even after the report showed that Eurozone manufacturing industry contracted in November as the global demand weakened and region moved toward recession. The Eurozone PMI Manufacturing figure remained unchanged at 46.40 in November; any reading below 50.00 demonstrates that the sector is contracting. Expect for the euro to remain weak against its major rivals before EU officials’ summit on December 09 in Brussels.

The dollar consolidated against its major rivals as market participants commended the Central Bank’s move to reduce the emergency dollar funding to ease Europe’s sovereign-debt crisis. The stocks jumped around the globe and greenback dropped as much as 1.3% against the euro as central bank’s represented their power to ease the financial markets. Looking ahead to today, ISM Manufacturing release headlines the economic calendar, with the expectations for the figures to rise to 51.8 in November from 50.8 in the previous month. Expect for the dollar to remain extremely volatile ahead of the November employment release scheduled for Friday.