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Just how far can this Dollar weakness go?

Just how far can this Dollar weakness go?

UK Construction PMI data printed at its lowest level since early 2009 yesterday, but the fact that it beat expectations suggests some stabilisation in the construction sector. Despite the poor overall figure, Sterling recovered some losses early in yesterday’s session against both the Euro and the Dollar.

This morning the UK Services PMI data will be the only release before tomorrow’s Bank of England Monetary Policy Committee meeting. The market has been expecting an interest rate cut from 0.5% to 0.25% since the last outing, but yesterday’s stronger than expected Construction PMI has caused some speculation that The Old Lady of Threadneedle Street might sit on her hands again and make no changes.

In the US there was little evidence of inflationary pressure, indicated by personal income and spending data meeting expectations. The Core Personal Consumption and Expenditure printed at 1.6% versus the Fed’s stated target of 2%, meaning that there is little prospect of immediate rate hikes.

The Dollar posted losses against all major currencies following the decrease in the probability of an interest rate hike. EURUSD reached fresh six-week highs at 1.1232. GBPUSD maintained above 1.3300 through the US trading session, reaching its highest level in over two weeks at 1.3357. These levels were not maintained, however, with Cable opening today at 1.3300.

Markets are waiting for latest US employment releases, with a first insight into Friday’s Nonfarm payrolls this afternoon. ISM Non-Manufacturing PMI data will also be released today, where any sign of a negative outlook will cause the Dollar to weaken further.

The Euro weakened by 0.73% versus the Pound during yesterday’s European trading session as the positive inflation figures from the Producer Price Index failed to spur the market into action. This was because the optimism surrounding the EU has lowered since the Brexit by 50%, the lowest since the debt crisis in 2012. Today’s EU Markit Services PMI will look to better last month’s figure of 52.7, and the PMI Composite will be looking to beat 52.9.

Data to Watch: 9am EUR Final Eurozone Services PMI. 9:30am GBP UK Services PMI. 10am EUR Retail Sales MoM. 1:15pm USD ADP Non-Farm Employment Change. 2:45pm USD Final Services PMI. 3pm USD ISM Non-Manufacturing PMI.

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