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European Session – Euro falls to 1-month low, dollar rallies on ISM data

The euro fell to a fresh one-month low versus the dollar today below $1.0840 as it came under pressure due to expectations of more ECB stimulus next week. Recent Eurozone inflation data and today’s PMI data heightened the chances the Bank will take action at its March 10 policy meeting.

Eurozone manufacturing activity expanded at its weakest pace in a year as indicated by the final PMI reading for February at 51.2, down from 52.3 in January. On Monday, Headline CPI became negative at -0.2% year-on-year in February. This was far off the ECB’s 2% inflation target. Markets expect the ECB to cut rates further at the upcoming meeting, following December’s rate cut to negative territory for the first time ever. Some analysts expect the Bank to also step up its asset purchases. Total QE is currently at 1.5 trillion euros.

The UK also released manufacturing PMI data today, which came in at its lowest in almost three years. The February index slipped to 51.2 in February from 52.3 in January. The pound was sold off immediately after the data but it rebounded quickly to briefly break above the key $1.40 level. The rally was short-lived and sterling fell back down as concerns about Brexit are keeping the British currency under pressure.

Meanwhile a bounce in the dollar also weighed on the pound after stronger-than-expected US ISM manufacturing data. While the index remains in contraction territory (below 50), the 49.5 reading for February beat economists’ forecasts at 48.5 and was above the prior 48.2 reading.

The dollar rallied against the yen after the ISM data to reach 113.80 yen.

Oil prices were up early in the European session, as risk was on and European stocks rose for a fourth day. US oil futures rose above $34 a barrel at one point. Safe haven demand faltered and the yen slipped from a three-year high against the euro, while gold prices fell after reaching as high as $1248.

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