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Dollar off Lows as U.S. Manufacturing Activity Accelerates

4/2/2019, 2:53:33 PMMarket Analysis
Dollar off Lows as U.S. Manufacturing Activity Accelerates

The U.S. dollar moved off session lows against its rivals on Monday as stronger U.S. manufacturing data helped keep a lid on the downside following a sharp increase in the pound ahead of a fresh rounds of votes in the U.K. on a path for Brexit.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.02% to 96.78, but remained above session lows of 96.60.

ISM manufacturing data for March showed an uptick to 55.3, handily beating expectations of 54.5. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12% of the U.S. economy.

"ISM Manufacturing for March came in above expectations and employment remains below cycle peaks but comfortably back near prevailing levels in 2018, as March showed the biggest one-month increase in three years. This points to a potentially strong NFP on Friday," BMO said in a note.

The stronger-than-expected ISM manufacturing data eased worries about slowing economic growth following signs of subdued U.S. consumer growth amid weaker-than-expected retail sales.

The Commerce Department said on Monday that retail sales fell 0.2% in February. That confounded economists’ forecast for a 0.3% rise. The retail sales control group – which has a larger impact on U.S. GDP – fell 0.2%, missing expectations for a 0.4% increase.

The retail sales report provides the "most significant hard data support for the market’s pessimistic outlook, and it looks like this will remain the case for another month," Action Economics said.

But the dollar struggled to turn positive as sterling racked up gains ahead of a second round of votes due 3 PM ET (19:00 GMT) on a series of options that could help break the current impasse in parliament on the path for Brexit just weeks ahead of the latest EU Brexit deadline on April 12.

The four options to be voted on include a call on the government to negotiate a permanent customs union, the U.K joining the European Free Trade Association and European Economic Area (Common Market 2.0), a confirmatory public vote on the Brexit deal and a choice between no-deal Brexit or revoking Article 50 - stopping Brexit - if the EU does not agree to an extension.

Among the four options, a permanent customs union and a confirmatory public vote on the Brexit deal secured the most votes in the first round of voting last week.

The results of the vote are expected to come at around 5 PM ET (21:00 GMT).

If the options fail to gain majority support, a third round of votes is pencilled in for Wednesday. U.K. Prime Minister Theresa May could also attempt to bring her Brexit deal, which has been defeated on three occasions, before parliament for a fourth vote.

EUR/USD fell 0.09% to $1.1206 as data showed eurozone manufacturing activity continued to contract in March, prompting analysts' to warn that the single currency will likely continue its drift lower.

"EUR/USD is set to go on testing the downside, supported only by the scale of shorts in the market. CFCT suggests these are back to 2106 levels but while that may prove helpful to the euro when good news turns up. It won't while good news is so clearly absent," Societe General said in a note.

USD/CAD fell 0.25% to C$1.3315 as swashbuckling gains in oil prices supported the loonie.

USD/JPY rose 0.51% to Y111.41 as risk-on sentiment resumed, denting demand for the safe-haven yen.