The US dollar is mostly softer as North American participants prepare to return from what for many was a long weekend. The greenback had initially moved higher, hitting JPY119.15 while the euro slipped to $1.2420. 

The proximate cause was the continued fall in oil prices and news that Moody’s cut Japan’s credit rating to A1 from Aa3. However, the dollar shed its gains in the European morning. Falling equity markets sent the dollar to almost JPY118, and the euro recovered to almost $1.2480. 

Don’t think that the euro recovery was a function of a better manufacturing PMI, because it wasn’t. The region’s PMI fell to 50.1 from 50.4 of  flash reading. Germany’s PMI was the most disappointing, slipping 49.5 from 50.0 of the flash and 51.4 in October. It is the lowest since June 2013 and the second sub-50 reading in the past three months. 

France offered a pleasant surprise. The manufacturing PMI rose to 48.4 from the 47.6 in the flash reading. This still represents a small decline from the 48.5 reading in October. France’s manufacturing PMI has not been above 50 since April. However, recall that France’s GDP rose 0.3% in Q3, which was above expectations shaped by the contracting PMI reports. 

The European periphery has actually taken over from the core the mantle of economic leadership as it were. Greece, Spain and Ireland were among the fastest growing in Q3. Spain’s manufacturing PMI rose to 54.7, a new cyclical high from 52.6 in October. The consensus had expected a small decline. Italy was unchanged from October at 49.0. 

The UK also surprised. The manufacturing PMI rose to 53.5 from a revised 53.3 in October (initially 53.2). It is the highest reading since July. The market had expected a little slippage. In Asia, sterling had recorded a new low for the move, slipping to almost $1.5585. However, in the European morning, it has recovered to near the pre-weekend high of nearly $1.5740.  Although sterling recouped earlier losses, its gains appear fragile as short-term interest rates, implied in the December 2015 short-sterling futures contract has fallen to new low (~86 bp).