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    European Session – Sterling falls to three-month low after UK construction PMI, euro back below 1.13

    The main data point during the European session was UK construction PMI, which rose to 57.3 in August from 57.1 in July. While this indicated solid growth it was below the 57.5 that was forecast.

    The data was probably not enough to change recent views from investors who have pushed back the timing of the first Bank of England rate hike well into next year. Sterling fell against the dollar to reach its lowest level in almost three months at 1.5263, down from a session high of 1.5314.

    The euro was soft today, and fell back out of the 1.13 handle to reach a low of 1.1225. Aside from the broadly firmer dollar, the ECB policy meeting tomorrow is keeping demand for the single currency low.

    While the ECB is not expected to take any action at this meeting, the euro remains vulnerable going forward since recently there have been some indications that the central bank was willing to expand or extend its quantitative easing program if missing its 2% inflation target becomes a risk.

    Data of out of the Eurozone today was on July producer prices which fell as expected by 0.1% m/m as in June.

    The dollar traded back above the key 120.00 yen level into the US session after a brief dip to 119.68 in European trading. Despite a miss in the ADP jobs number, the dollar rose shortly after the data to 120.33 yen. Also, a more positive risk appetite in the markets led to less safe haven demand for the yen.

    Today’s private jobs number showed that 190,000 jobs were added in August which was short of the 201,000 gain expected. Meanwhile, July’s reading was revised down to 177,000 from 185,000 jobs. US factory orders data missed forecasts and rose 0.4% versus 0.8% expected. The dollar still remained above 120.00 yen though.

    Friday’s all-important non-farm payrolls report now comes into focus. A disappointing NFP report would certainly push back investors’ expectations of a Fed rate hike and make it less likely for a liftoff this month.

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