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Fears of US recession grow as manufacturing slumps

While markets are predicting another rate cut by the Fed, Boris Johnson will offer a "fair and reasonable compromise" to the EU as the Brexit deadline is looming.

Centtrip: Fears of US recession grow as manufacturing slumps

The Dollar started the day on the back foot as investors sought safety on concerns over a slowing US economy following weak manufacturing data.

The figures released overnight showed the US manufacturing sector contracted in September at the fastest pace in more than a decade, raising fears of a recession and causing the greenback to drop sharply from an over-two-year high. The Institute for Supply Management (ISM) said its index of US factory activity fell to 47.8 – the lowest reading since June 2009. Many consider this a bad omen for September US labour figures due on Friday, since moves are often correlated. A figure below 50 signals contraction.

The US currency was marginally weaker against the Euro at 1.0940 and fell against the Australian and New Zealand Dollars, retracing some of its large gains on Tuesday. The equities market tumbled.

Market participants now see a bigger chance of another interest rate cut by the Federal Reserve this month.

The Fed funds futures market predicts a 64.7 per cent chance of a quarter-point rate cut at the Fed’s meeting on 29-30 October, according to the CME FedWatch Tool. Before the release of the manufacturing data, traders were pricing in a 40 per cent chance of a rate reduction this month.

The Fed dropped down its benchmark overnight lending rate to a target range of 1.75–2 per cent in September, two months after its first rate cut in 11 years.

Meanwhile, an apparent North Korean missile test only reinforced the flight to safety, nudging the Japanese Yen, Swiss Franc and gold slightly higher.

The Pound has drifted lower to $1.2296, close to an almost one-month low as traders are increasingly nervous about Britain crashing out of the European Union at the end of the month.

Prime Minister Boris Johnson will officially unveil his final Brexit offer to the EU later today and reiterate the UK intends to leave on 31 October no matter what. In his speech at the Conservative Party conference, Johnson insisted his plan was a “reasonable compromise” and offered the last chance to avoid a chaotic no-deal exit.

The prime minister’s allies claim that the proposal has “evolved significantly” over the past 24 hours, and if the EU rejects it, the UK will break off talks and start preparing for a no-deal exit.

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