UK Manufacturing PMI drops; US ISM Manuf is next

USD continues to be sold despite a preliminary agreement on US debt ceiling. UK manufacturing sector contracts, Eurozone unemployment stays unchanged. Market turns to US July ISM manufacturing PMI.

USD shorts were covered during Asian trading but USD strength did not last long. Since London traders got to their desks they continue to sell the greenback as US downgrade has not been completely averted. Equity markets are higher on improved risk aversion while gold and silver pulled back slightly.

GBP was sold even against the weak USD after UK manufacturing PMI in July dropped to 49.1 from previous 51.4 which marks not only the sixth month of gradual worsening but also the weakest print since June 2009. Readings below the 50 level imply a sector contraction. MPC will announce their interest rate decision on Thursday. In light of latest round of weak data, rate hike seems unlikely.

Eurozone unemployment stayed unchanged and in line with expectations at 9.9% and final German manufacturing PMI for July was confirmed at 52 from 52.1. Eurozone manufacturing PMI in July was not revised and stayed at 50.4.

The New York session starts at 10:00 am ET with ISM manufacturing PMI for July. Analysts predict an unchanged reading at 50.4 which would be not only four months low but also dangerously close to the 50 mark that suggests a contraction.

Voting is expected today on preliminary agreement on US debt ceiling. Should the agreement be voted into a law, the greenback should see a relief rally.