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Greenback strengthens on US ISM

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Greenback strengthens on US ISM

The greenback continued its broad rally following the Labor Day weekend as the US manufacturing industry expanded at its fastest rate in more than two years. Manufacturing activity in the US expanded for the third consecutive month, according to the monthly Manufacturing Index. The August reading expanded 0.3 percentage points over the previous month to reach 55.4 percent, according to the Institute of Supply Management. The overall economy expanded for the 51st consecutive month, Tuesday’s ISM report also showed.

The US dollar gained half a percent to 82.45 against a basket of its major competitors. Over the previous five days the dollar index has advanced more than 1.3 percent on risk-aversion, as market participants weigh the likelihood of a strike against Syria. Barrack Obama will seek congressional approval before pursuing military action, according to the president’s weekend address.

The euro is trading at six week lows against the US dollar, despite upbeat manufacturing activity raising the prospect of Eurozone recovery. The EURUSD was down another quarter percent Tuesday to 1.3163, following a session low of 1.3139. The pair has declined more than 1.6 percent over the previous five days. Year-to-date, EURUSD is trading flat.

The US dollar held its ground against the British pound following consecutive days of upbeat UK data. Construction activity in August expanded at its fastest rate in almost six years, according to the Markit/CIPS Purchasing Managers Index. The report on construction activity follows Monday’s better-than-expected report on manufacturing, where it was shown output and new orders rose at their fastest rate in more than 20 years. By the end of the North American session, GBPUSD was trading within the 1.5560 range.

The outlook on US dollar pairs will depend on the pace and timing of Federal Reserve monetary policy. Wall Street expects the first asset taper to commence at the next Federal Open Market Committee policy meetings, which are scheduled to begin September 18.

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