Dollar extends decline after disappointing factory data

The dollar extended its fall on Wednesday following disappointing manufacturing data, helping the euro to recover from more than two-year lows.

Sterling also rallied, recovering some of Tuesday's losses after the latest parliamentary attempt to stop a no-deal Brexit.

The dollar's pull-back was prompted by manufacturing activity in the world's biggest economy contracting for the first time in three years last month, data from the Institute for Supply Management published on Tuesday showed.

That knocked the wind out of a previously rising greenback and spurred a further bond rally as investors increased bets on more Federal Reserve interest rate cuts before the end of 2019.

The dollar was last down 0.2 per cent against a basket of major currencies, its index at 98.803, easing from a more than two-year high hit on Tuesday.

“Yesterday's manufacturing survey was very gloomy and confirms that the US is suffering from the global trade and manufacturing downturn, along with everyone else,” said Kit Juckes, currency strategist at Societe Generale.

The euro rose 0.2 per cent to $1.0992, pulling further away from $1.0926 - a 28-month low - touched on Tuesday before the weak US data was published.

The European single currency was little moved by the final release of the euro zone Purchasing Managers Index composite survey, which came in slightly better than expected.

The safe-haven yen and Swiss franc fell as some calm returned to markets, helped by reports that Hong Kong leader Carrie Lam would on Wednesday announce the formal withdrawal of an extradition bill that triggered months of unrest.

Data showing growth in China's service sector also boosted investor sentiment.

The yen was down 0.2 per cent at 106.19 yen per dollar. The Swiss franc dropped 0.3 per cent versus the euro to 1.0858 francs .

The dollar's weakness helped China's offshore yuan pull away further from record lows plumbed earlier this week. The yuan was last up 0.3 per cent at 7.1553 yuan per dollar.

Emerging market currencies were mostly up on the dollar weakness, while the Australian and New Zealand dollars also seized on the greenback's weakness to rise .

“The expectation that the Fed will come to the rescue has increased,” said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney.

“But it's not a capitulation on the dollar. It's just merely stopped the recent rise of the dollar.”

The British pound, which on Tuesday fell below $1.20 and to its weakest in three-years, rose 0.5 per cent to the day's high of $1.2157.

Against the euro it rallied 0.4 per cent to 90.39 pence.

Lawmakers who defeated Prime Minister Boris Johnson's government late on Tuesday are expected to introduce a bill in parliament seeking to stop Britain from leaving the European Union on October 31 without transitional arrangements.

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