Search ForexCrunch

The manufacturing sector in the US is undergoing a smaller slowdown than expected. The ISM Manufacturing PMI dropped to 60.4 points. A drop to 59.9 was expected. But the dollar doesn’t rise.

EUR/USD traded at around 1.4845 before the release. USD/JPY fell to 81.30 and GBP/USD was under 1.67 before the publication. All pairs are now seeing a weaker dollar. The Bin-Laden effect is already behind us and also this figure doesn’t cheer the dollar.

The manufacturing sector has enjoyed strong growth in recent months. This was reflected in rising scores in the purchasing managers’ index for this sector. In the past two months, the score exceeded 60 points, pointing to very fast growth. 50 points is the line that separates growth from contraction.

The strong PMI figures from ISM were also reflected in job gains that were seen in recent months. Both the manufacturing and Non-Manufacturing PMIs serve as excellent indicators for the Non-Farm Payrolls that will be released later this month.

So, this continued strong growth may lead to a stronger gain in jobs in April – a figure that is released on Friday. It depends on the Non-Manufacturing (service sector) PMI released later in the week.

The general sentiment remains dollar bearish, following the announcement of QE2 Lite by Ben Bernanke last week, an event that will weigh on the greenback for a long time.

The accompanying figure of ISM Manufacturing Prices also surprised and rose to 85.5 points, stronger than last month’s 85 points and significantly higher than 83.3 that was expected. This means stronger inflation.

In addition, Construction Spending also exceeded expectations with a rise of 1.4%, stronger than 0.4% that was predicted.

Yet the euro is heading up, with EUR/USD at 1.4855, not too far from the 1.4882 peak. For more on the euro, see the EUR/USD Forecast.