The euro pared losses against the dollar on Monday after data showed that U.S. industrial production unexpectedly fell in August, overshadowing an earlier report showing that manufacturing activity in the New York region jumped to an almost five year high this month. The dollar slipped after official data showed that U.S. manufacturing activity fell 0.4% in August as motor vehicle output dropped sharply. Excluding automobiles, manufacturing production was up 0.1% in August. The report showed that factory output was up 4.6% on a year-over-year basis, pointing to underlying strength in the sector. Demand for the dollar continued to remain underpinned ahead of the upcoming Federal Reserve policy meeting on Wednesday, amid mounting expectations for an early hike in U.S. interest rates.
Sterling slipped lower against the dollar on Monday as investors looked anxiously ahead to the outcome of Thursday’s referendum on Scottish independence and the Federal Reserve’s policy meeting on Wednesday. The latest opinion polls on the Scottish independence referendum indicated that the outcome of the vote is too close to call. Concerns over the prospect of a yes vote sparked a selloff in the pound last week after polls indicated that support for the yes vote had edged into the lead for the first time since the start of the pro-independence campaign. Uncertainty over what currency an independent Scotland would use, as well as concerns over how much of the U.K. national debt it would take on have rattled financial markets. Bank of England Governor Mark Carney warned last week that a currency union between an independent Scotland and the rest of the U.K. would be “incompatible with sovereignty”.
Mixed U.S. data sent the dollar falling against the yen on Monday, as investors sold the greenback for profits and snapped up bargain-priced yen positions, though market sentiments remained firm that monetary policies in the two countries will diverge, limiting the yen's gains. Expectations for U.S. monetary policy to tighten while Japan's loosen have firmed the dollar against the yen in recent sessions, though profit taking weakened the pair on Monday thanks in part to mixed U.S. data. Bank of Japan Governor Haruhiko Kuroda said Thursday monetary authorities would be prepared to immediately loosen monetary policy or implement other measures if its 2% inflation target becomes difficult to meet.
