Risk sentiment fuels a rise in major currencies against the dollar

The US dollar retreated in early European trading Tuesday after disappointing US ISM Manufacturing PMI weighed down on the dollar, keeping risk sentiment on the rise. It gives other majors more room to pare back some of their recent losses against the greenback. It has also kept gold bulls hopeful for reaching the 50-day exponential moving average around the 1714 mark.

There has been a statement released by the Bank of England, reaffirming that it will buy long-dated gilts worth up to £5 billion. In response, the yield on US Treasury bonds dropped even further away from a multi-year high that was touched last week, weighing on the greenback in turn. In an intraday session of USD selling, the bullish sentiment picked up a touch after the Institute for Supply Management (ISM) survey showed that manufacturing activity in September grew at its slowest pace in nearly two and a half years. The September ISM Manufacturing PMI dropped to 50.9 from 52.8 in August. Furthermore, a measure of manufacturing employment contracted for the fourth time this year and a gauge of inflation at the factory gate decelerated for the sixth straight month.

GBP

Moreover, the overnight rally in the US equity markets further undermined the safe-haven buck due to the risk-on impulse. However, the GBP/USD pair ended the Asian session on Tuesday with strong gains, though it failed to sustain the momentum. In taming inflation and cooling demand, the US central bank is continuing to raise interest rates at a faster pace than in the past, limiting the downside for the USD. In combination with a bleak outlook for the UK economy, this acts as a headwind for the sterling. Additionally, investors may prefer to stay away from the markets ahead of Friday's closely watched US jobs report.

Euro

The EUR/USD pair is hovering around weekly highs of 0.9850 and is poised to break through it to break past the critical hurdle of 0.9900. Following a stronger rebound, the asset has turned sideways in a narrow range of 0.9735-0.9850. With the US dollar index (DXY) facing a rough phase due to the Fed's escalating interest rates, there is a chance an upside break of the consolidation will occur.

European stock market

Tuesday's European stock market opens higher following a positive start to the new quarter in the previous session. Adding to the positive tone is the decision of the UK government to reverse proposed tax cuts for top earners and Australia's central bank that raised interest rates by a smaller-than-expected 25 basis points earlier Tuesday.

Events of the day

This week's main event will be the release of US employment data on Friday. Compared to the previous figure of 315k jobs, the projections estimate the US economy has added 250k jobs. As a result of rising interest rates, job creation projections have been drastically reduced. This has forced the corporates to abandon the recruitment process as expansion plans have been shelved.

In the meantime, eurozone bulls have hailed Brussels' proposal for a more expansive debt reduction program. According to the Financial Times, EU capitals are being given more time to reduce their debts and expand public investment, part of a sweeping overhaul of the EU's deficit rules.

In terms of economic data, investors await the release of German Retail Sales data, which is expected to decline by 1.7% against a decline of 0.9% previously reported. Moreover, markets will closely monitor the August Eurozone PPI to get a better understanding of inflationary pressures in the region. According to the forecast, the index will grow 4.9% per month and 43.1% annually.