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Dollar recovers from manufacturing data knock

London

THE US dollar rose on Wednesday after disappointing manufacturing data knocked it off two-year highs, while the euro clung to levels above US$1.09.

US manufacturing contracted at the fastest pace in more than a decade in September, making the US the latest country to suffer a manufacturing downturn amid a trade war between Washington and Beijing.

Many analysts, however, say the dollar's higher yield and the relative strength of the US economy should make its setback temporary. Non-farm payrolls data due on Friday should give more insight into the health of the US economy.

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The dollar index, which measures the it against a basket of other currencies, climbed 0.2 per cent to 99.353 after reaching 99.667 on Tuesday, a 29-month peak, before the manufacturing data was released.

The euro fell 0.2 per cent to US$1.0915 but was above Tuesday's two-year low of US$1.0879.

"Yes, US manufacturing is disappointing, but it's no more disappointing than the euro zone PMIs (Purchasing Managers' Index surveys) we saw," said Michael Hewson, analyst at CMC Markets. He added that weakness in US manufacturing would have to spill over into services before it had much impact on monetary policy and the outlook for the dollar.

Even with more rate cuts, the dollar is still the highest-yielding currency among developed markets.

The US economy has also held up well, so far.

"We'll need to wait for tomorrow's non-manufacturing index for a broader view of how fast the economy overall is losing momentum, and we'll have to go on waiting if we want cast-iron evidence that recession, like winter, is coming," said Societe Generale's strategist Kit Juckes.

The Australian dollar fell 0.3 per cent to US$0.667, its weakest since early 2009, as investors dumped currencies linked to the outlook of the global economy.

The Japanese yen strengthened 0.1 per cent to 107.64, reflecting investor demand for safer assets after the US data heightened concerns about the health of the global economy.

The Swiss franc fell after Swiss National Bank governing board member Andrea Maechler said expansive monetary policy was critical to help counter global uncertainty. The franc dropped 0.6 per cent against the euro to 1.0915 francs and was last down 0.7 per cent against the dollar at 1 franc.

The pound sank 0.5 per cent to US$1.2247 amid doubt over whether Prime Minister Boris Johnson's final Brexit offer to the European Union would be well-received by Brussels. REUTERS