Forex Europe Review – Euro, Sterling drop on weak data; Swiss franc up

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EURUSD fell after the weakest reading in two years from the manufacturing PMI index which highlighted economic sluggishness in the 17 nation euro region as purchasing managers were less willing to book new orders. Also, German GDP showed Europe’s largest economy is still contracting. This is the third straight day euro declines, as yesterday other disappointing data on inflation and unemployment. The stream of weak data fuels speculation that the European Central Bank will not raise interest rates any more this year. An unsuccessful Spanish bond sale added to euro zone woes. Meanwhile weak U.S. data manufacturing PMI could also drag down the euro since the single currency is the most vulnerable now due to the euro zone debt crisis and is seen as having the most to lose from signs of weakness in the overall global economy. Jobless claims in the U.S. fell by 12,000 to 409,000 in the week ended August 27 in line with expectations, so there was little effect on the EURUSD. The focus will now turn to the more important non farm payroll report on Friday. In the session EURUSD fell to a low of 1.4263 from 1.4369 open.

GBPUSD slipped to a three-week low to 1.6193 from 1.6230 session open after data showed U.K. manufacturing activity contracted in August, and the gloomy economic picture left sterling vulnerable to further losses. British manufacturing fell at its fastest pace in more than two years in August, hurt by a sharp drop in demand for exports to provide more evidence that Britain’s economic recovery is stalling. Against the euro, the pound managed to make slight gains as the single currency fell after a series of weak manufacturing surveys in the euro zone. EURGBP fell to 0.8796 from 0.8850.

The Swiss franc continued to hold strong against the euro and the dollar today as growth concerns in both regions pushed demand for the safe haven currency. Weak euro zone data and weak demand at the Spanish bond auction, just a few days after a sluggish response to an Italian bond sale, highlighted increased investor wariness about two of the euro zone’s biggest countries. EURCHF fell to 1.1379 from 1.1546 open price. Other fundamentals, concerning the U.S. recovery also are supportive of the Swiss franc. ISM manufacturing data due later today and the all important Non farm payroll data tomorrow will determine dollar direction. Today despite U.S. initial jobless claims falling more than predicated, dollar still fell against franc after the news. Overall in the session, USDCHF was on a downtrend, touching a session low of 0.7959 from 0.8035 open.

USDJPY opened the session at 76.76 and eventually climbed up to 77.15 as the yen stayed under pressure on dollar buying by Japanese big firms. Meanwhile the dollar gained strength against yen in anticipation of the Labor Department data that was forecasted to show U.S. initial unemployment claims dropped in the week ended August 27. Claims actually fell more than expected which helped support dollar. However, things could change for dollar after a report on ISM manufacturing which is expected to fall to show contraction in the U.S.