he US Dollar struggled with thin currency trading due to the Labor Day bank holiday possibly amplifying moves somewhat. News of North Korea’s latest nuclear test caused investors to react in a classic risk-off mode, buying the safe-haven Swiss Franc and Japanese Yen in favour of riskier currencies. The Swiss Franc notched up one of its largest gains in a number of weeks, while the rising political tensions sent the Yen to back below the 110 level.

With geopolitical tensions growing and data out of the US economy mostly disappointing, the Dollar remains stuck around its weakest position in trade-weighted terms in two-and-a-half years. Dollar bulls will be hoping for a more optimistic assessment of the economy that leaves open the possibility of a 2017 interest rate hike from Chair Janet Yellen at next week’s Federal Reserve meeting.

Activity in the US should pick-up pace today and a number of Federal Reserve speakers this afternoon will be closely watched ahead of next week’s FOMC meeting. We pay particularly close attention to Minneapolis Fed President Kashkari’s appearance which could provide a good gauge as to likelihood of an additional hike this year, given he is currently one of the most dovish members of the committee.

UK construction activity slows, traders cautious ahead of ECB

Sterling ended London trading modestly lower against both the USD and Euro, with yesterday morning’s disappointing construction PMI adding to the relatively gloomy outlook for currency as Brexit negotiations rage on. The monthly index declined to a one year low 51.1 from 52.0, hit by a slump in investment in the commercial sector amid ongoing uncertainty surrounding the negotiations with Europe. Fragile business confidence in the industry on the whole means that further weakness in the index is likely. However, its small contribution to overall UK GDP meant that the market mostly overlooked the release.

Investors will instead place far more importance on this morning’s service PMI. Consensus is for a modest slowdown to 53.5 from 53.8, which would offset much of the optimism surrounding last week’s impressive manufacturing index. Just before the UK release we’ll get the latest services PMI for the Eurozone, which is expected to confirm the sector expanded at a solid pace again last month.

Euro traders are likely to be in a relatively cautious mood in the next few days ahead of Thursday’s highly anticipated European Central Bank meeting. As we have outlined in our preview report we think there is a good chance President Draghi will disappoint the market, which could present a downside risk to the common currency this week.