The Pound weakened against the majority of its most traded peers on Tuesday as investors grew jittery ahead of the release of the latest UK Construction PMI data. The market is forecasting a decline in output following yesterday’s Manufacturing PMI report, which showed that activity in the sector grew at its slowest pace in 14-months. The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 52.5 in August, its lowest level since June last year and was below forecast. Concerns over a weakening Eurozone and escalating Ukraine tensions also weighed.
The US Dollar strengthened broadly against the Pound on concerns that the UK economic recovery is slowing. The ‘Greenback’ also found support from demand for safe-haven assets after Nato said that it was close to agreeing on a deal that would create a rapid reaction force of several thousand troops to protect Eastern Europe from Russia. Ukraine’s Defence Minister also accused Russia of launching a ‘Great War’ against his country. Ukrainian troops were forced to flee Luhansk airport in the east of the country amid an offensive by pro-Russian rebels. Tuesday’s session will also see the publication of the latest US Manufacturing PMI and Construction Spending data.
The Euro was holding at a one-year low against the US Dollar on Tuesday as investors adopted defensive positions ahead of Thursday’s European Central Bank policy meeting. Opinion amongst traders appears to be mixed on whether the introduction of new monetary easing measures will be a positive move. Monday saw another string of disappointing Eurozone data and today’s PPI data for the region is likely to disappoint.
The Australian Dollar tumbled to a one-week low against the US Dollar after the Reserve Bank of Australia chose to leave interest rates unchanged and said that the currency is overvalued. RBA Governor Glenn Stevens said that the Australian dollar ‘remains above most estimates of its fundamental value’ and that it ‘is offering less assistance than would normally be expected in achieving balanced growth in the economy.’ The currency was also weaker against the Pound and most other major peers.
New Zealand Dollar
The New Zealand Dollar fell against most of its rivals as investors remained cautious over the worsening situation in Ukraine. Also weighing upon the currency was Monday’s disappointing Chinese Manufacturing PMI data. The ‘Kiwi’ did however manage to edge higher against its Australian relation after the RBA talked down the ‘Aussie’.
The Canadian Dollar was weaker against the US Dollar and other peers as investors turned to safe-haven assets and away from emerging market currencies. Growing signs that open war could break out between Ukraine and Russia has spooked the markets but the ‘Loonie’ could regain some ground later in the session if the latest RBC Manufacturing PMI data comes in stronger than the previous month. A decline in the gauge however and the currency will weaken further.
South African Rand
The Rand declined instead to its lowest level in a week against the US Dollar as more disappointing domestic economic data and mounting risk aversion weighed upon the currency. The Rand is likely to weaken further if the session’s US data releases come in positively.
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