US Dollar struggles for direction with central bank action in focus

Frankfurt (Aug 1)  The dollar kicked off August with a choppy trading session, struggling against the Japanese yen, but rising against the British pound on Monday after U.K. manufacturing activity hit its lowest level in three years.

The U.S. dollar USDJPY, +0.17%  traded at ¥102.16, compared with ¥102.04 late Friday in New York. The dollar had found some strength earlier in Asia, owing to disappointing action from the Bank of Japan last week. The euro EURUSD, -0.1342%   traded at ¥114.19, barely changed from levels seen late Friday.

On Friday, the dollar fell about 3% to below ¥102 in highly volatile trade. The BOJ’s monetary easing fell short of the hopes of investors who had expected more aggressive policy steps. Also on Friday, weak U.S. GDP data added to doubts about the possibility of a U.S. Federal Reserve interest rate increase this year, pulling down the U.S. currency to as low as ¥101.97.

“What we’ve seen is a big difference between high expectations among overseas investors and the answer the Bank of Japan has offered,” said Marito Ueda, director at FX Prime by GMO.

Investors are now shifting focus to the prospects for a rate hike by the Fed as early as in September. A slew of U.S. economic data is due this week, ranging from ISM manufacturing report on Monday and jobs data Friday. “Investors will start over again to take fresh positions,” said Ueda.

Investors showed muted reaction to remarks by Federal Reserve Bank of New York President William Dudley. Dudley on Monday argued for continued caution over the path of U.S. interest rates, given uncertainty over the global outlook. But he warned that traders who have been ruling out an interest rate increase later this year are growing too complacent.

Sterling slides

In other currency trade, the pound GBPUSD, -0.3175%   fell to $1.3166 compared with $1.3259 earlier in the session. The pound’s strength eroded after Markit data said its purchasing managers index figures for the U.K. manufacturing sector fell to the lowest level since 2013 after the U.K.’s vote to exit the European Union.

The euro EURUSD, -0.1342%   was steady at $1.1172 from $1.1175. Surveys of purchasing managers showed the eurozone’s manufacturing sector slowed in July. Much of the growth occurred in Germany, while activity declined in France, and edged toward stagnation in Spain and Italy,

The Australian dollar AUDUSD, -0.3292%  moderately after mixed readings on Chinese manufacturing activity, with investors cautiously awaiting the policy decision by the Reserve Bank of Australia due Tuesday.

The Aussie dollar AUDUSD, -0.3292%  , which is closely linked to China growth, fell to $0.7582 and ¥77.45 AUDJPY, -0.23% respectively, from $0.7592 and ¥77.55.

China’s official manufacturing purchasing managers’ index slipped below 50 level for the first time in five months, but China July Caixin manufacturing PMI came in at 50.6, better than the street forecast of 48.8.

Source: MarketWatch