The dollar continued its rally during the European session and managed to peak at a two-week high against its major peers following upbeat manufacturing PMI releases, although a music festival in Las Vegas turned into the deadliest mass shooting in US history. However, gains from positive data were short-lived following dovish remarks by the Minneapolis Fed President Neel Kashkari. The UK manufacturing PMI numbers failed to provide support to the pound, which was one of the worst performing currencies relative to the dollar during the day, hitting a three-week low.
The US ISM manufacturing PMI for the month of September surprised to the upside, with the index touching a six-year high of 60.8 instead of falling by 0.8 points to 58.0 as analysts projected. Manufacturing indices for new orders, employment and prices also came in better than expected.
However, a dovish speech by the Minneapolis Fed President, Neel Kashkari, pushed immediately the dollar index lower from a two-week high of 93.49 touched earlier. Kashkari claimed that the Fed’s policy was responsible for the weaker inflation and not transitory factors, while he added that policymakers should wait for price growth to reach the Fed’s 2% target before raising interest rates.
The dollar index was last trading at 93.35. Dollar/yen was up at 112.68.
The euro gained some ground against the greenback in the session but remained 0.57% down on the day at $1.1745 after a violent independence vote in Spain’s Catalonia region on Sunday exacerbated political risks in the eurozone. The ballot, which was declared illegitimate by the Spanish government, showed that 90% of the votes were in favor of breaking away from Spain.
In terms of data out of the eurozone, the Markit Manufacturing PMI slipped below expectations to 58.1 in September, while analysts anticipated the figure to remain steady at 58.2. Nevertheless, the index held at six-year highs, highlighting the strength of the manufacturing sector. Eurozone’s unemployment rate stood flat at 9.1%, but forecasts were for the rate to inch down to 9.0%.
In the UK, the Finance Minister, Philip Hammond, speaking at his Conservative party annual conference starting today (expected to conclude on October 4), argued that Britain must accelerate Brexit talks and offer at least a two-year transition period for businesses to adjust in order to mitigate short-term risks arising from the process. However, the pound could not gain on Hammond’s words as worse-than-expected Markit/CIPS manufacturing PMI readings released earlier weighed on the currency. The index dropped from the downwardly revised 56.7 to 55.9, while projections were for the figure to slip to 56.4.
Pound/dollar reached a three-week low of 1.3274, while euro/pound surged to a one-week high of 0.8867 before falling to 0.8847.
The aussie rebounded to 0.7829 ahead of the RBA policy meeting on Tuesday where policymakers would likely keep rates steady at a record low of 1.5%.
In energy markets, WTI crude oil retreated to a one-week low of $50.19 per barrel, while Brent declined to $55.49 as uncertainties around a rising US oil production and Chinese crude imports rose. An IEA market analyst said on Friday that even if the OPEC production remains constant, the agency does not see any "big draw in OECD crude inventories over the next 6-9 months", as it expects US production to increase by 1.1 million bpd. Moreover, he expressed concerns over a rising crude demand in China, where imports have already offset part of crude inventory reductions elsewhere.
The loonie found support on September’s RBC manufacturing PMI numbers, which increased to 55.0 from 54.6 in the previous month, standing at three-year high levels. Though the commodity-linked currency was still 0.24% down on the day, weighed by declining oil prices, with dollar/loonie rising to 1.2494.