The EUR, USD, GBP, CAD React To Data

The surprise in yesterday’s session was from all places the UK where a report showed the services sector in the U.K. expanded at the fastest pace in more than six years in July. A key gauge of services activity in the U.K. jumped to 60.2 in July from 56.9 in June, marking a seventh month of growth for the index, which is published by data firm Markit and the Chartered Institute of Purchasing & Supply. The improvement in the U.K. was even stronger than gains seen in the services sector in the euro zone and the U.S according to the Wall Street Journal.  The pound rose to trade at 1.5354 and is holding tight this morning in the Asian session supported by a weaker US dollar. The stronger-than-expected data came just days ahead of the Bank of England’s quarterly inflation report, which will be scrutinized for details of the central bank’s so-called forward guidance on monetary policy, an innovation spearheaded by the BOE’s new governor, Mark Carney. The recent run of strong economic data has complicated the BOE’s decision over whether to provide guidance over the future path of interest rates and follow the lead of its central-bank peers.

The US dollar fell a bit to trade at 81.85 after weakening after Friday’s employment data. The dollar was mixed against most of its major rivals, even after a report Monday showed the nonmanufacturing sector in the U.S. picked up steam in July. The Institute for Supply Management’s nonmanufacturing purchasing managers’ index increased to 56 in July from 52.2 in June. Offsetting some optimism from the ISM report was the employment component of the index, which fell slightly during the month. The dollar fell for a third day versus the yen before Federal Reserve Bank of Chicago President Charles Evans speaks after jobs data last week missed estimates.

The weakness in the dollar helped the euro climb to trade at 1.3265 in the Asian session. The euro was trading at $1.3248 compared with $1.3281 late Friday. A report Monday showed that business activity in the eurozone grew modestly in July for the first time in a year and a half. Economic data releases failed to provide much momentum, despite showing signs of improvement. Data compiled by Markit showed that eurozone business activity grew marginally in July for the first time in a year and a half. The composite purchasing managers’ index climbed to 50.5 in July from 48.7 the previous month; Germany saw the strongest factory performance in 18 months. Eurozone retail sales fell 0.5% in June and 0.9% on the year. Although the month-to-month decline was the largest since December 2012, it wasn’t as bad as expected.

The Looney dipped by 10 pips this morning as the US dollar weakened, but remains in a tight range ahead of data due at the end of the week. The CAD is trading at 1.0353. The Canadian currency briefly erased losses against the greenback after the U.S. Labor Department reported a 162,000-job increase in U.S. payrolls last month, the smallest in four months. The median forecast of 93 economists surveyed by Bloomberg called for an 185,000 gain. The U.S. unemployment rate declined to 7.4 percent, from 7.6 percent the previous month. Oil, Canada’s biggest export, dropped for the first time in three days, with futures losing 1 percent to $106.83 a barrel in New York. The Standard & Poor’s GSCI index of commodities declined 0.6 percent.