US Dollar Drops on Weak PMI Data, Coronavirus Hits Confidence

Marco Green
February 21, 2020

The blue chip Dow Jones Industrial Average and S&P 500 fell more than 0.8%, while the tech-heavy Nasdaq was more than 1% lower.

US Dollar Index erases majority of weekly gains.

IHS Markit's Euro Zone Composite Flash Purchasing Manager's Index (PMI), seen as a good gauge of economic health, rose to 51.6 in February from January's final reading of 51.3, beating all forecasts in a Reuters poll which had a median prediction of 51.0.

Business activity in the U.S. services sector fell last month for the first time since 2013, hurt by the coronavirus, according to a survey. A reading below 50 indicates contraction.

"With the exception of the government shutdown of 2013, USA business activity contracted for the first time since the global financial crisis in February", he said.

The disappointing U.S. PMI surveys contrast with those released out of the United Kingdom and Eurozone this morning, where expectations were beaten. Exchange rates have tended to reflect the relative economic outperformance of one country over another thus far in 2020, which helps explain why the Dollar is outperforming its peers.

Upbeat Manufacturing PMI from United Kingdom helps GBP gather strength.

Above: Sterling-Dollar reacts to the data release.

"The Euro Zone economy managed to pick up some momentum again in February despite many companies having been disrupted in various ways by the coronavirus, which caused supply problems", said Chris Williamson, chief business economist at IHS Markit.

IHS said that overall contraction was driven by a the first fall in service sector output in four years.

New order volumes in manufacturing dropped to the lowest level in nine months and private companies failed to bring in new foreign clients.

The drop came amid a "notable worsening" in the services sector, which includes finance and retail, the IHS Markit research firm reported.

Williamson also noted that companies were cautious about spending because of worries about a broader economic slowdown and uncertainty ahead of US presidential elections in November.

The survey data are consistent with GDP growth slowing from just above 2% in January to a crawl of just 0.6% in February. All three reports are based on surveys of business executives.

Other reports by Click Lancashire

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