Dollar gains on robust U.S. service sector data

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Investing.com - The dollar strengthened against most major currencies on Tuesday after a widely-watched gauge on the U.S. service sector beat expectations for July.

In U.S. trading on Tuesday, EUR/USD was down 0.35% at 1.3375.

The Institute of Supply Management reported earlier that its U.S. services purchasing managers' index jumped to 58.7 in July from 56.0 in June.

Economists had expected the index to tick up to 56.3, and the better-than-expected figure sparked demand for the dollar as investors adjusted their timetables as to when the Federal Reserve may hike interest rates, with many betting tightening will come sooner than once anticipated.

The new orders component of the index rose to 64.9 in July from 61.2 in June, the highest reading since August 2005. The employment index rose to 56 from 54.4 in June, the fifth consecutive month of growth.

Also in the U.S., the U.S. Census Bureau reported that factory orders climbed by 1.1% in June, beating forecasts for a gain of 0.6%. Factory orders fell by 0.5% in May.

Meanwhile in Europe, the single currency softened after data revealed that the service sector activity in Italy grew at a slower pace than expected in July, one month after hitting the highest level since November 2010.

Italy's services purchasing managers' index slowed to 52.8 in July from 53.9 in June, according to Markit Economics. Economists had expected a reading of 54.0.

Service-sector activity in Germany and Spain grew last month, while the expansion in the French service sector remained marginal.

The euro zone's services PMI came in at 54.2, missing estimates for a 54.4 reading.

The data added to the view that the recovery in the euro zone is losing momentum as investors looked ahead to the outcome of the European Central Bank's monetary policy meeting on Thursday.

A report late last week showing that the annual rate of inflation in the euro area slowed to 0.4% in July from 0.5% in June added to concerns over growing deflationary pressures in the region.

A separate report on Tuesday showed that euro zone retail sales rose by 0.4% from a month earlier in June, in line with forecasts, though the figure did little to bolster the euro against a surging dollar.

The dollar was up against the yen, with USD/JPY up 0.03% at 102.60, and up against the Swiss franc, with USD/CHF up 0.31% at 0.9094.

The greenback was down against the pound, with GBP/USD up 0.09% at 1.6877.

U.K. service-sector activity expanded at its fastest pace in eight months in July.

In a report, market research group Markit Economics reported that its Markit/CIPS Services Purchasing Managers Index rose to 59.1 in July from 57.7 in June, beating expectations for a 57.9 reading.

On the index, a level above 50.0 indicates expansion in the industry, below 50.0 indicates contraction.

"The buoyancy of the services and construction sector PMIs suggest the domestic economy clearly continued to boom in July, offsetting the cooling of growth seen in the manufacturing sector," said Markit's chief economist, Chris Williamson.

"We would expect to see GDP rise by 0.8% again if the surveys hold their current levels."

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.51% at 1.0962, AUD/USD down 0.33% at 0.9303 and NZD/USD down 0.69% at 0.8465.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.26% at 81.60.

On Wednesday, the U.S. is to publish data on its trade balance.

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