The Euro was unable to sustain a recovery attempt on Tuesday and came under fresh selling pressure as the dollar gained renewed support after stronger than expected data.
The Australian Reserve Bank interest rate decision was one of the least contentious in recent memory with interest rates on hold at 2.50% and the bank not making any major comments on the Australian dollar’s value. AUD/USD initially moved higher to the 0.9340 area, but was unable to break above 0.9350 which triggered profit taking on longs.
There was a surprise reading for the Chinese HSBC PMI non-manufacturing index with a figure of 50 for July, the first time the index had not been above the 50 benchmark for the first time in the survey’s nine-year history. Although Asian equity markets weakened the dollar was resilient with USD/JPY support below 102.50.
The latest Italian PMI services index was weaker than expected which did little to bolster underlying Euro support and there was disappointment that the pair had not been able to secure a more impressive corrective recovery. With no attempt on the 1.3445/50 area, EUR/USD retreated to the 1.3400 area early in Europe. The pair was hampered initially by selling against the yen as EUR/JPY dipped below the 137.50 level.
Pressure then increased as EUR/GBP dipped sharply later in the session. The catalyst for this move was a much stronger than expected UK PMI services report with an increase to 9-month highs of 59.1 for July from 57.7 previously. Given that companies reported increasing wage costs, debate within the Bank of England over the need for higher interest rates is likely to intensify with the latest policy meeting starting on Wednesday.
This data triggered a fresh spike higher in Sterling with GBP/USD pushing to highs around 1.6890 as EUR/GBP dipped to the 0.8930 area. The Euro maintained a heavy tone into the European open with no significant recovery attempt.
The latest US ISM manufacturing index was significantly stronger than expected at 58.7 for July from 56.0 previously and this was the highest reading since March 2011. The orders component was particularly robust which will help revive underlying optimism surrounding the outlook and US bond yields moved higher following the data.
In this environment, the dollar was able to gain fresh support with EUR/USD breaking to new 2014 lows just below 1.3365. USD/CHF moved higher to re-test resistance around 0.9100 while USD/JPY probed resistance towards 103.00 without being able to break higher.