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    European Session – Dollar boosted by strong US data but euro and pound sag

    Markets continued to be short on risk appetite on Wednesday as commodity currencies remained under pressure even as the dollar retreated from earlier gains. Major European indices were in the red again as traders turned gloomy on the outlook for global growth. The negative sentiment was heightened further by disappointing European PMI numbers out earlier today.

    The final reading of the Eurozone services PMI was revised lower from 53.2 to 53.1 in April, while the composite PMI was left unchanged at 53.0. Although a reading above 50 represents positive growth, the April figure shows overall activity in the Eurozone slowed slightly from March. Meanwhile, retail sales numbers for the euro area disappointed as they declined by 0.5% month-on-month in March instead of the expected -0.1%.

    The euro fell slightly after the PMI data but faced further volatility during the European session, mainly in response to US data. The single currency see-sawed above and below the 1.15 level for much of the day and was last trading at 1.1480 dollars.

    The pound was less volatile but remained subdued during the course of the day. Brexit concerns are weighing on the British currency as some polls continue to point to a slight lead for the ‘leave’ campaign. Weak PMI data has also hurt the pound in the past couple of days as yesterday’s poor manufacturing PMI was followed by disappointing construction PMI today.

    The UK’s construction PMI declined from 54.2 in March to 52.0 in April, much lower than forecasts of 54.0. Sterling plunged from around 1.4530 dollars before the data to 1.4470 after the release and was fluctuating around the 1.45 level in late European trading.

    The dollar’s impressive rebound from Monday came to a halt at the start of European trading as investors became more cautious ahead of important US data out today. The greenback retreated from an earlier peak of 107.44 yen and dropped to an intra-day low of 106.24 yen following weaker-than-expected ADP employment change figures. According to the ADP employment report, private sector employment rose by 156k in April, much lower than forecasts of 196k.

    However, the greenback quickly bounced back following better-than-expected trade figures. The US trade deficit was less than expected in March as imports fell by 4.3% and exports declined by a more moderate 1.6%. This led to the trade gap shrinking to $40.4 billion in March – the lowest since February 2015.

    The positive indicators continued with stronger-than-expected business survey data and factory orders. The Markit final services PMI was revised higher from 52.1 to 52.8 in April. The more important ISM non-manufacturing PMI also surprised on the upside as it beat estimates of 54.7 to come in at 55.7 in April. March factory orders added to the dollar’s bullish sentiment as they rose by 1.1% month-on-month versus estimates of 0.6%.

    The strong data pushed the dollar back above 107 yen in late European trading but it struggled to hold onto that level and later slipped just below it.

    A rebound in crude oil prices failed to lift commodity currencies as the Australian and New Zealand dollars remained near the day’s lows. US oil futures jumped back above $44 a barrel but came off its highs following a bigger-than-expected increase in US crude oil inventories.

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