Dollar May Rise as ISM Print Boosts Fed Outlook, Pound Eyes PMI Data

Talking Points:

• British Pound Looks to PMI Figures to Inform BOE Rate Hike Speculation
• US Dollar May Rise as Upbeat ISM Report Feeds Fed Normalization Bets
• Aussie Dollar Erases Intraday Losses, Trades Flat After RBA Rate Decision

July’sUK Services PMIfigure is expected to show a slight acceleration in the pace of non-manufacturing sector growth, with the index rising to 58.0 after dropping to a three-month low of 57.7 in the previous month. The Composite PMI gauge is forecast to print unchanged from June. On the whole, UK data flow has tended todisappoint relative to consensus forecasts since late February, hinting analysts are over-estimating the health of the economy and opening the door for a downside surprise. Such an outcome may dent Bank of England interest rate hike bets and weigh on British Pound. On the other hand, technical positioning hints a bounce may be in the cards.

Later in the day, the spotlight shifts to ISM Non-Manufacturing Composite gauge. Economists suggest the release will show US service-sector growth accelerated to the fastest pace in 11 months in July. An upbeat outcome may encourage speculation that the economy may be sufficiently strong for the Federal Reserve to move quickly to raise interest rates after the “QE3” stimulus program ends in October, pushing the US Dollar higher out of consolidation.

The Australian Dollar produced a limited response to the RBA monetary policy announcement, as expected. The central bank kept the baseline lending rate unchanged at 2.50 percent and Governor Glenn Stevens once again reiterated that “the most prudent course is likely to be a period of stability in interest rates” going forward. The Aussie erased an earlier overnight downswing following a soft set Chinese PMI figures released earlier in the session following the outcome, entering the European session nearly unchanged against its US namesake.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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