Manufacturing Report Can't Boost Dollar

July 2, 2008
Inflation offsets index improvements.

The dollar lost ground against major currencies July 1 as skeptical traders paid little heed to a forecast-beating snapshot of U.S. manufacturing activity.

The euro advanced to $1.5796 dollars after 1.5745 on June 30.

The dollar was meanwhile lower against the yen at $106.10, down from $106.13 on June 30.

The dollar failed to enjoy a lasting bounce from news that the Institute of Supply Management (ISM) manufacturing index improved to 50.2 in June from 49.6 in May, beating predictions of a drop to 48.5.

The latest reading was above the 50-point cut-off that marks expansion. At the same time, the employment sub-index fell to 43.7 from 45.5, well below the 50 level for the eighth consecutive month.

"While the initial reaction was positive... prices paid (inflation) surged to the highest level since 1979, while inventories grew rapidly and employment contracted at an accelerated pace," says Michael Woolfolk at Bank of New York Mellon.

"Given that the ISM's predisposition to 'gild the lily,' its strikingly dire report summary is noteworthy. With manufacturing already in recession, it is now faced with the highest input prices in 29 years and falling consumer demand for their products."

"The pick-up in the latest ISM survey of manufacturing is clearly welcome but the detail is less encouraging," says Julian Jessop of Capital Economics.

Copyright Agence France-Presse, 2008

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