Sterling soars after stunning UK PMI survey, dollar firmer

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The U.S. dollar fell against a basket of currencies on Thursday after U.S. manufacturing activity unexpectedly declined in August, casting new doubts on the strength of the U.S. economy.

The data overturned earlier dollar strength as investors wait on highly anticipated jobs data due on Friday for new clues on when the Federal Reserve will next raise interest rates.

Fed Vice Chair Stanley Fischer said last week that the jobs data for August will be a consideration for when the Fed raises rates. Employers are expected to have added 180,000 jobs in August, according to the median estimate of 89 economists polled by Reuters.

His comments followed a relatively hawkish speech by Fed Chair Janet Yellen, which has raised expectations the U.S. central bank is moving closer to an interest rate hike.

"People are focusing on the jobs data," said Vassili Serebriakov, a currency strategist at Credit Agricole in New York.

Higher Treasury yields helped demand for dollars earlier on Thursday, but "the majority of the participants are on the sidelines waiting for the numbers tomorrow," Serebriakov said.

The dollar index, which measures the currency against a basket of six majors, fell 0.41 percent to 95.63, near low of session of 95.595.

The euro was last up 0.34 percent against the dollar at 1.1200.

The greenback was down 0.09 percent against the yen to 103.20 yen, after earlier rising to 104.00, the highest since July 29.

Sterling jumped 1.17 percent against the dollar and hit a one-month high against the euro on Thursday after data showing the British manufacturing sector staged one of its sharpest rebounds on record in August.

The Markit/CIPS Purchasing Managers' Index (PMI), a closely watched gauge of factory activity, jumped to a 10-month high of 53.3 in August, recovering from the three-year low it hit in July after Britain's June 23 vote to leave the European Union.

Sterling gained to $1.3265, from $1.3152 beforehand.

"The pound is flying," said Craig Erlam, senior market analyst at OANDA. "Not only did the market not expect such a jump, it was barely expecting any improvement at all, just a slight recovery from the knee jerk response in July."