Dollar gains as market gives U.S. factory report applause

Investing.com - Investing.com - The dollar traded mixed to higher than most major currencies on Tuesday even after a key manufacturing gauge missed expectations, as markets viewed the index as strong enough to suggest the U.S. economy continues to move ahead down its road to recovery.

In U.S. trading on Tuesday, EUR/USD was down 0.11% at 1.3678.

The Institute for Supply Management reported earlier that its purchasing managers' index fell to 55.3 in June from 55.4 in May. Analysts had expected the manufacturing PMI to increase to 55.8 in June, though the dollar posted gains, as any reading over 50 marks expansion.

Gains were cautious, as the report came in wake of U.S. data released last week showing a 2.9% economic contraction in the first quarter, which fueled expectations that the Federal Reserve will keep rates on hold for an extended period.

Speaking Monday, San Francisco Fed President John Williams underlined this view, saying the bank will probably need to hold interest rates near zero for at least another year to ensure recovery remains on track.

Still, the dollar found support on U.S. data and elsewhere.

China's official purchasing managers' index came in a 51.0 in June, in line with expectations and up from 50.8 in May, which also painted a picture of an improving global economy.

Elsewhere the final reading of the Markit Economic U.S. manufacturing PMI rose to 57.3 in June, the highest reading since May 2010. The report showed the fastest growth in output and new orders since April 2010.

Separately, the Commerce Department said construction spending rose 0.1% in May, below the expected 0.5% increase.

Meanwhile in Europe, revised data revealed that the euro zone's manufacturing PMI dipped to a seven-month low of 51.8 in June, missing consensus forecasts for a 52.9 reading.

Germany's PMI came in at 52.0, and eight-month low and shy of forecasts for a 52.4 reading.

A separate report showed that the region's unemployment rate ticked down to 11.6% in May, revised from the initial reading of 11.7%.

The dollar was up against the yen, with USD/JPY up 0.19% at 101.53, and up against the Swiss franc, with USD/CHF up 0.08% at 0.8876.

In Japan, the country's quarterly Tankan survey of big business sentiment came in at +12 in June, missing market calls for a +15 reading.

The greenback was down against the pound, with GBP/USD up 0.27% at 1.7152.

Earlier Tuesday, Markit Economics reported that its U.K. manufacturing purchasing managers' index rose to 57.5 last month, up from 57.0 in May. Analysts had expected the index to tick down to 56.8, which gave the pound support.

The report said new orders continued to increase on the back of stronger domestic and export demand. Meanwhile, jobs creation in the sector rose to its highest in 39 months, led by increases in small firms.

The report indicated that the U.K. economy continued to grow at a strong pace in the second quarter, fuelling expectations that the deepening recovery will prompt the Bank of England to raise interest rates before the end of this year.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.35% at 1.0634, AUD/USD up 0.70% at 0.9498 and NZD/USD up 0.22% at 0.8777.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.04% at 79.85.

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