The dollar dipped sharply to 2-week lows after weaker than expected ISM manufacturing data triggered fresh doubts over the US outlook.

The dollar dipped sharply to 2-week lows after weaker than expected ISM manufacturing data triggered fresh doubts over the US outlook.

The Euro and Sterling gained some support on December’s first trading day. Risk appetite was also damaged by the data, especially with a lack of confidence over US-China trade developments and the US imposition of steel tariffs on Brazil and Argentina.

Global equity markets retreated significantly with Euro-zone bourses declining around 2% on the day.

The dip in equity markets curbed further selling on the yen and Swiss franc.

Gains in the Australian dollar were boosted by a slightly less dovish Reserve Bank of Australia statement, but the Canadian dollar under-performed.

The final US PMI manufacturing index was confirmed at a 7-month high with an upward revision to 52.6 from the flash reading of 52.2 .In contrast, the ISM manufacturing index declined to 48.1 for November from 48.3 the previous month. This was below market expectations of 49.2 and the fourth successive reading below the 50.0 level. The new orders index declined to 47.2 from 49.1 while order backlogs also declined at a faster pace. The employment index also contracted at a faster pace while prices continued to decline.

Construction spending also declined and the ISM data was significant in damaging confidence in the outlook. President Trump also again attacked a strong dollar and Federal Reserve policies.

The final reading for the UK PMI manufacturing index was revised up to 48.9 from the flash reading of 48.3. Demand for industries in the consumer sector remained firm, but there was further weakness in investment goods. De-stocking following the latest Brexit delay was a significant factor for the month. The data overall provided marginal Sterling support.

There were no major political developments during the day with little change in opinion polls and global moves tending to dominate. GBP/USD pushed to highs just below 1.2950 on the weaker US dollar while GBP/EUR slipped towards 1.1680.

CFTC data recorded a further net increase in non-commercial, Sterling shorts to over 36,000 contracts, increasing the potential for short covering if there are positive political developments.

BRC data recorded a sharp 4.9% annual November decline in retail sales, although it was distorted by calendar effects and underlying sales recorded a net gain. The UK currency was little changed on Tuesday as GBP/USD attempted to break above 1.2950.

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