- Prior 58.9
- Manufacturing PMI 54.5 vs 55.2 expected
- Prior 55.7
- Composite PMI 57.1 vs 56.9 expected
- Prior 57.6
The readings sees the French economic expansion slow down but the services sector remains rather resilient, offsetting the drop in manufacturing activity. The services sector growth is at a two-month low though, with the manufacturing sector growth seen at a seven-month low in May. Of note, weak demand due to higher prices weighed on manufacturing production.
In terms of inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Read this Term, there was an intensification of price pressures as both input costs and output charges increased at survey-record rates. S&P Global notes that:
“The French economy is showcasing a remarkable degree of resilience amid mounting economic headwinds. Overall business activity rose sharply in May and at a rate that was only slightly weaker than April’s multi-year high. According to our panel members, businesses, particularly in the service sector, enjoyed another boost to their order books as a result of the removal of pandemic restrictions in recent months.
“The picture is more gloomy on the manufacturing side of France. As well as sustained supply-chain pressures and challenging conditions for exporters, rapid inflation is dissuading clients from placing orders. Manufacturing demand was more-or-less stagnant in May, while exports declined. As a result, we saw further evidence of a twospeed economy emerging within France as a resilient service sector continues to mask sluggishness across the manufacturing industry.
“The only real positive was seen in employment data as jobs growth was at its strongest in over two decades. Whether strong hiring trends can be sustained amid rising cost pressures and any further softening in the demandside of the economy remains to be seen. Both input costs and output prices rose at new record rates in May.”
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