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February’s UK Manufacturing PMI survey headline the economic calendar in European trading hours. A slowdown in the pace of factory-sector growth is expected, with the headline index ticking down to 52.3 from 52.9 in the prior month.

UK news-flow increasingly outperformed relative to consensus forecasts over the past month, suggests analysts are underestimating the economy’s strength and opening the door for an upside surprise. This may encourage covering of net-short British Pound exposure build up in recent months, sending prices higher.

The spotlight then turns to US ISM Manufacturing data, expected to show the pace of contraction accelerated in February (48.5 vs. 48.2 in January). A better-than-expected print in line with recent outperformance on US data may stoke Fed rate hike bets, boosting the US Dollar.

The Australian Dollar erased overnight losses after another neutral RBA monetary policy announcement. While no change in rates was expected, traders were speculating that a recent deterioration in economic metrics would spur a dovish shift in rhetoric, paving the way for easing in the months ahead. Aussie Dollar erases post-China PMI drop on neutral RBA rhetoric

 Governor Glenn Stevens and company opted for the status quo however, judging the current setting policy as appropriate to deliver continued growth with inflation close to target. The door for easing was left open however, with Stevens saying that low inflation offers scope for rate cuts should that be appropriate.

The Aussie was on the defensive ahead of the RBA announcement after a disappointing set of Chinese PMI figures. The data set showed the manufacturing sector contracted at the fastest pace since November 2011 while services growth hit the weakest since the Great Recession trough in 2008.