Dollar dropped across the board except versus the Japanese yen on Monday as upbeat economic data from around the world and the surge in global stock markets dampened the greenback's safe-haven appeal. The ICE U.S. dollar index fell to its lowest level in more than 10 months to 77.45 after the release of better-than-expected U.S. ISM manufacturing data. U.S. manufacturing shrunk again in July but at a slower pace than in June. The Institute for Supply Management said its index of factory activity rose to 48.9 in July from 44.8 in the previous month. DJI ended up 114.95 points or 1.25%, Nasdaq gained 30.11 points or 1.52% and S&P-500 added 15.11 points or 1.53%.
Euro strengthened against the greenback as risk appetite continued to rise due to the rally in European shares and surprisingly strong manufacturing sector data from Europe. Eurozone and German manufacturing PMI both came in higher-than-expected at 46.3 and 45.7 respectively versus the expectation of 46.0 n 45.2. European stocks hit their highest levels for 2009 after the results from HSBC Holdings PLC and Barclays PLC. HSBC, Europe’s biggest bank, posted net income of $3.35 billion in the first half compared to $600 million loss analysts estimated. Barclays fell short of expectations with an 8% rise in half-year profit. Euro rose to as high as 1.4445 against the dollar after the release of better-than-expected U.S. manufacturing ISM data. Cross buying in euro versus yen also helped to lift euro as eur/jpy jumped from 134.58 to 137.55.
The British pound rallied against the greenback on Monday as strong U.K. data and financial reports from two big European banks boosted demand for the pound and pushed the pair to it highest this year at 1.6988. Sterling gained upward momentum after U.K. purchasing manager’s index rose to 50.8 in July from a revised 47.4 the previous month and well above economists’ forecasts of 47.7. The data strongly suggested that the U.K. economy is likely to record positive growth through the rest of this year and into 2010. Cable also buoyed as FTSE 100 ended up 1.61% following results from HSBC and Barclays. In addition, the Bank of England said on July 30 that it finished buying 125 billion pounds of securities and the Monetary Policy Committee will review whether the scale of the asset-purchase program should be changed at its August meeting.
Former Federal Reserve Chairman Alan Greenspan had some modestly optimistic comments about the economy over the weekend. Greenspan said that ‘we may very well have 2.5% growth in the current quarter’. He also indicated that a recovery is near. ‘I am pretty sure we have already seen the bottom by looking at the weekly production figures for various different industries.’
The Japanese yen weakened versus higher-yielding currencies as positives manufacturing reports from U.S., Europe and China lifted hopes about the global economy and boosted risk appetite. Gbp/jpy jumped from 158.15 to 161.77 while aud/jpy hit multi-weeks high at 80.35.
Elsewhere in other markets, oil jumped more than 3% and settled above $71.00 per barrel on Monday and August gold futures rose to their highest level in nearly two months due to the dollar’s board-based weakness. The surge in commodity prices sent the Australian, New Zealand and Canadian dollars to multi-months highs versus the greenback with aud/usd hitting as high as 0.8441, nzd/usd rose to 0.6688 while usd/cad slid to 1.0643.
Earlier in the day, China Federation of Logistics and Purchasing said that purchasing managers' business activity index for non-manufacturing sectors rose to 58.9 in July from 55.4 in June.
Data to be released on Tuesday include Australia retail sales, house price index, RBA rate decision, Switzerland CPI, U.K. Halifax house prices, construction PMI, eurozone PPI, U.S. PCE, personal income and spending and pending home sales.