Dollar rises close to three-month highs after weak Chinese data

The U.S. dollar gained in early European trade Tuesday, as traders turned to this safe haven after disappointing Chinese services activity hit risk-taking sentiment.

At 03:00 ET (07:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% higher at 104.382, close to three-month highs.

Weak Chinese data boosts safe-haven dollar
Data released earlier Tuesday showed that China’s services activity expanded at the slowest pace in eight months in August, with stimulus from Beijing having so far failed to meaningfully revive the second largest economy in the world.

The Caixin services purchasing managers’ index rose 51.8 in August, lower than expectations for a reading of 53.6 and July’s figure of 54.1.

This disappointment has seen traders run to the safety of the U.S. dollar, with the dollar index climbing close to its highest level since early-June.

At the same time, USD/CNY rose 0.3% to 7.2940, with the yuan falling to a one-week low.

The U.S. market is set to return from Monday’s public holiday, and the focus is likely to be on the number of Fed officials who are set to speak this week, offering more cues on monetary policy before a hotly-anticipated meeting later in September.

While the U.S. central bank is expected to keep interest rates steady, it is also expected to reiterate its plans to keep rates higher for longer.

Euro weakens ahead of Lagarde speech
EUR/USD fell 0.3% to 1.0764 ahead of the release of the final eurozone activity data for August, which is expected to paint a negative picture of the strength of the region’s economy.

The eurozone composite PMI is expected to come in at 47.0 in August, a fall further into contraction territory from 48.6 the prior month.

A run of soft eurozone data, particularly out of Germany, Europe’s biggest economy, has raised the likelihood of the European Central Bank pausing its rate-hiking cycle later this month.

ECB President Christine Lagarde is set to speak later Tuesday, her second consecutive day in the spotlight. She declined on Monday to remove the impression that the central bank officials were looking to pause the series of rate hikes at the meeting later this month.

GBP/USD also fell 0.3% to 1.2584, with the U.K.’s composite PMI also expected to retreat, falling into contraction territory, at 47.9 in August, from 50.8 in previous month.

Aussie dollar slumps after RBA meeting
AUD/USD fell 1.3% 0.6373, with the Aussie dollar hit hard after the Reserve Bank kept its cash target rate at 4.10%, offering up no changes to its wait-and-see stance in its final meeting with Governor Philip Lowe at the helm

The RBA has now kept rates steady for a fourth straight month, and although it left the door open to future increases, markets are pricing only a small chance that rates go higher from here.

Elsewhere, USD/JPY rose 0.3% to 146.93, with the pair close to a one-week high and likely heading towards the 150 level unless Japanese authorities choose to intervene.