The pound dropped against its major counterparts in the European session on Monday, after the UK manufacturing sector activity expanded less-than-expected in the month of July.

The Chartered Institute of Procurement & Supply/ IHS Markit manufacturing Purchasing Managers' Index rose to 53.3 in July from 50.1 in June. The flash reading was 53.6.

New orders expanded for the first time since February, mainly reflecting a strengthening of domestic demand. But new export business fell for the ninth straight month, albeit to the weakest level since February.

European stocks rose after a private gauge of China's manufacturing activity rose in July to its highest level in more than nine years.

The upside, however, remained capped amid worries over a further tightening of restrictions in Europe and a deadlock in the deliberations over a new stimulus deal in the U.S.

The pound depreciated to 1.3021 against the greenback, setting a 2-day low. The next possible support for the pound is seen around the 1.25 level.

The pound pared gains to 137.75 against the yen, from a high of 139.03 seen at 8:30 pm ET. The pound is seen finding support around the 134 region.

The latest survey from Jibun Bank showed that Japan manufacturing sector continued to contract in July, albeit at a slower rate, with a manufacturing PMI score of 45.2.

That's up from 40.1 in June, although it remains beneath the boom-or-bust line of 50 that separates expansion from contraction.

After rising to a 1-1/2-month high of 1.2035 at 4.30 am ET, the pound moved off to 1.1953 against the franc. On the downside, 1.15 is possibly seen as the next support level for the pound.

The pound edged down to 0.9013 against the euro from Friday's closing value of 0.8997. If the pound slides further, it may find support around the 0.92 level.

Final data from IHS Markit showed that the euro area manufacturing sector returned to growth in July for the first time in a year-and-a-half as output and demand continued to recover with the further easing of restrictions related to the coronavirus disease.

The manufacturing Purchasing Managers' Index rose to 51.8 in July from 47.4 in June. This was also above the flash reading of 51.1. Looking ahead, U.S. construction spending for June and ISM manufacturing index for July will be out in the New York session.

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