Dollar slides ahead of Fed, China data hit oil

Wed May 1, 2013 6:26am EDT
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By Marc Jones

LONDON (Reuters) - The dollar edged to a two-month low on Wednesday as investors awaited the outcome of the U.S. Federal Reserve's policy meeting later and brighter-than-expected UK manufacturing data pushed sterling to a 2-1/2 month high.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) rose to 49.8 in April from an upwardly revised 48.6 in March, putting the sector within a whisker of the 50 line that separates growth from contraction.

Economists had expected a much weaker reading of 48.5 and the first rise in the new orders component of the survey since January instilled a tone of optimism into markets.

Sterling rose to a new 2-1/2 month high against the dollar of $1.5591, UK gilts fell and London's FTSE 100 .FTSE, the only of Europe's major stock markets not closed for Labor Day, climbed 0.4 percent to move back towards its recent 4-1/2 year high .L <HOL/DIARY>.

Unlike the U.S., China and the euro zone, UK PMI's are the only ones currently heading upwards. Economists remain decidedly cautious about the country's near term outlook, however, with sluggish internal growth and a battle to bring down debt levels weighing on the economy.

"It's a relatively decent result," said Investec economist Philip Shaw. "The manufacturing sector is still weak - the PMI remains below the 50 break even level - but there is some semblance of stabilization, which could imply a gentle building of recovery momentum across the economy."


Wider market attention remained largely on central bank actions though. The Federal Reserve will announce the outcome of its latest meeting at 2:00 p.m. EDT, while the European Central Bank is expected to cut its interest rates to a new record low of 0.5 percent on Thursday.   Continued...

Tokyo Stock Exchange (TSE) employees work at the bourse at TSE in Tokyo April 24, 2013. REUTERS/Yuya Shino