Dollar Tumbles as Weak Chinese Manufacturing Raises Concerns about Global Economy

The U.S. Dollar fell overnight after weaker-than-expected Chinese manufacturing data drove up concerns about the strength of the global economy. Early in the session, the preliminary Caixin China Manufacturing Purchasing Managers’ Index, dropped to a 77-month low of 47.1 in August, compared with a final reading of 47.8 in July.

The report triggered sell-offs in the global equity markets which drove investors into the December Gold futures market. Some investors were parking their profits in gold. Others were using gold as a hedge against further deterioration in equity prices.

October crude oil is set up to finish lower for the tenth consecutive week. The market reached a 6 ½ low earlier this week following the release of a bearish U.S. Energy Information Administration weekly inventory report. The report for the week-ending August 14 showed that stockpiles rose 2.6 million barrels versus estimates of a 600,000 barrel decline.

The weaker dollar helped drive up demand for the Euro. Traders also increased bets that the Fed would pass on an interest rate hike in September.

The GfK German Consumer Climate report showed a reading of 9.9 versus the forecast of 10.2. French Flash Manufacturing PMI was 48.6, below the estimate of 49.8. French Flash Services PMI was 51.8 versus an estimate of 52.1.

German Flash Manufacturing PMI posted a robust 53.2 reading, beating the 51.7 estimate. German Flash Services PMI was 53.6, slightly below the 53.7 forecast.

Euro Zone Flash Manufacturing PMI was 52.4, a little better than the 52.3 forecast. Flash Services PMI rose to 54.3, up from 54.0 in July but a little lower than the 54.1 estimate.

The GBP/USD traded weaker for a second day. The Sterling was still feeling the effects of yesterday’s weak U.K. retail sales report. Investors are pricing in the possibility that the Bank of England will push its interest rate hike into mid-2016.

U.S. Flash Manufacturing PMI was 52.9 versus 53.8 in July and a 53.9 forecast.

The PMI reports had almost no influence on the price action today. Most of the volatility was driven by the weaker-than-expected Chinese manufacturing data. This price action could carry over into next week.