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The Dollar strengthened after PMI data signalled the U.S. economy expanded in October, in contrast to those of the Eurozone and UK.

The Dollar rallied against the Pound and Euro after S&P Global's services PMI read at 50.9 in October, defying expectations for a retreat from September's 50.1 to 49.8.

The manufacturing PMI read at 50, up from September's 49.8 and above the expected 49.5.

This contrasts with the UK's services PMI of 49.2 and manufacturing PMI of 45.2, both of which were more constructive than the Eurozone's 47.8 and 43, respectively.

The data suggest the U.S. economy continued to outperform those of the Eurozone and UK at the start of the final quarter, despite the U.S. seeing more significant interest rate hikes.

The latest survey results underpin the so-called U.S. exceptionalism trade that has underpinned the Dollar's recovery since July.

Above: GBPUSD at five-minute intervals (top) and EURUSD.

At the time of writing the Pound to Dollar exchange rate is half a per cent lower on the day at 1.2180 while the Euro to Dollar is two-thirds of a per cent lower at 1.0599.

The report from S&P Global indicated a 'goldilocks' outcome was underway for the U.S. economy, with demand conditions at manufacturers improving for the first time since April, while service providers saw a slower drop in new orders. Meanwhile, inflationary pressures softened.

The U.S. economy is expanding and inflation is falling, lowering the odds of a recession despite elevated interest rates.

"Hopes of a soft landing for the US economy will be encouraged by the improved situation seen in October," says Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "Future output expectations have also turned up despite rising geopolitical concerns and domestic political tensions, climbing to the joint highest for nearly one-and-a-half years."

This is bullish for U.S. yields, and the Dollar.

The same cannot be said for the Eurozone and UK where the PMI surveys point to an ongoing economic malaise.

"PMIs for the Eurozone and UK continued to point to weaker demand outlooks, with the eurozone report proving to be particularly concerning, the U.S. looks wonderful in comparison," says Simon Harvey, Head of FX Analysis at Monex. "For now, the PMI data mean that the U.S. exceptionalism story remains intact."

Harvey adds that the better prospective growth outlook in the U.S. keeps the dollar supported near its strongest levels of the year.