LONDON (AFX) - The dollar was steady in thin midday trade as investors stayed on the sidelines ahead of the US National Association of Purchasing Management survey, due at 3.00 pm today, dealers said. Kamal Sharma, strategist at Commerzbank said the dollar could be bolstered by this afternoon's NAPM, which he expects to show signs of an improvement following a better-than-expected Chicago PMI number last week.
He said the unit was firm on a combination of the markets being on the sidelines in anticipation of the NAPM and "on suggestion of gloom and doom on the euroland economy."
Consensus forcast is for the U.S. NAPM report to remain unchanged. The NAPM index declined for the tenth straight month in May to 42.1, suggesting that the overall U.S. economy failed to grow during the month.
"Across the board we are looking at continued dollar strength," Sharma said.
Meanwhile, the euro recouped some of its losses but remained on a declining trend from the Asian session.
The strategist sees further downside to the euro this week on the back of Germany's manufacturing orders and unemployment data, due out on Thursday.
The outcome to the European Central Bank governing council meeting on Thursday remains a very close call, he added.
"Given the much-stronger-than-expected M3 data, it looks on balance that the ECB will remain on hold despite the weakness in the PMI numbers," he said.
Sterling was up at midday, reacting to the move in the euro/dollar, dealers said.
"The saving grace for the UK continues to be a very strong domestic sector, with house prices remaining very strong, unemployment at record lows and well contained inflation," he said adding "it's a very good environment for continued strength in the consumer." Tomorrow will see the UK's Nationwide house prices for June released.
The UK Chartered Institute of Purchasing and Supply's manufacturing index rose to 47.3 in June from an unrevised 46.4 in the previous month, according to market sources.
"I think that the industrial sector in the UK is heading into a recession at the moment," he said.
A reading above 50 signals expansion, below it contraction. The greater the divergence the more rapid the rate of change.