The USD faced challenges at the start of the week due to the closure of US markets for the Labor Day weekend. However, market sentiment gained momentum with market openings and speculation surrounding upcoming economic data. Expected US economic releases, including manufacturing data on Tuesday, services data on Thursday and non-farm payrolls on Friday, are anticipated to further influence the dollar. Market participants are expected to remain cautious as multiple significant macroeconomic figures and potential interest rate cuts by the Fed could undermine the dollar.

Pound Buoyed by Robust Manufacturing PMI

The pound gained ground after the UK’s latest manufacturing PMI affirmed that factory sector growth hit a two-year high in August. Today, Bank of England (BoE) Deputy Governor Sarah Breeden is set to address the public, which may create market movement later. However, in the absence of key UK data, sterling will continue to be driven by market sentiment.

Euro Strengthens on Manufacturing PMI

EUR exchange rates climbed following the CPI announcement, bolstering speculation that the European Central Bank will cut interest rates in September. While market sentiment favours a rate cut, the lack of significant Eurozone economic data could leave the Euro directionless. Furthermore, upward movement in the US dollar may further dampen the Euro due to the currency's negative correlation.

Canadian Dollar Declines Ahead of BoC Rate Decision

In anticipation of the Bank of Canada's upcoming monetary policy decision, the Canadian dollar declines. Canadian markets were closed on Monday, exposing the currency to selling pressure driven by market expectations. The decline in the commodity-linked CAD is likely to be mitigated by rising crude oil prices. Market participants will closely monitor the Bank of Canada's interest rate decision on Wednesday, along with oil price trends.

Japanese Yen Rises Due to Hawkish BoJ

The Japanese Yen struggled on Monday due to weak manufacturing data and fuelled speculations around the Bank of Japan's upcoming monetary policies. The recent Manufacturing PMI for August came in at 49.8, up from the previous 49.5. Additionally, core CPI increased to 1.6% year-on-year in August, surpassing the previous 1.5%. Japan will also allocate $989 billion for energy subsidies, aimed at curbing inflation driven by rising energy prices and cost-of-living pressures. JPY, however, can be influenced by USD momentum.

Australian Dollar Struggles Ahead of ISM Manufacturing PMI

In anticipation of today's ISM Manufacturing PMI data, the Australian dollar lost ground. While traders observe Australia's Q2 Gross Domestic Product and July Trade Balance data, the upcoming speech by Bank of Australia Governor Michele Bullock may further influence the AUD. Additionally, the US Federal Reserve’s policy outlook may significantly affect the AUD.

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