Sterling started yesterday’s session bucking the broad trend of mild USD appreciation as an upwards revision to May’s services PMI, from 61.8 to 62.9, resulted in the pound trading slightly in the green against the greenback. However, it wasn’t to last as strong US economic data resulted in a renewed USD bid. While sterling fared well against the rest of the G10 currency board, it still posted a 0.45% loss against the dollar. Today, the pound is trading flat against the dollar but continues to post marginal gains against the euro ahead of the May construction PMI at 09:30 BST. With little else pencilled in for the day in terms of economic events, investors will turn their attention to the US labour market release as it guides the next trend for the broad US dollar.
The euro failed to escape the bout of USD strength yesterday and fell to a three-week low against the greenback despite the upbeat Purchasing Managers’ Index figures from the eurozone. All services indices printed well above expectations for Spain, Italy and the eurozone, while the final readings from Germany and France were unchanged. The readings are consistent with lockdown measures being eased throughout the bloc, which is especially notable in the services sector while the manufacturing sector naturally held up stronger throughout the lockdowns. Today’s economic calendar takes a look at eurozone retail sales at 10:00 BST which are set to show a 25% increase on an annual basis, with base effects being the main driver of the increase, while the month-on-month figure is set to fall by 1.5% according to the median of forecasts submitted to Bloomberg. With markets fully focusing on today’s Nonfarms release from the US, the retail sales print may go unnoticed by currency markets unless it contains large surprises in any direction.
It was all about the US dollar in yesterday’s session as the DXY index rose 0.65%, leaving all G10 currencies in its wake. Currencies with the highest beta, such as NZD, AUD and NOK, sustained the largest losses against the dollar over the course of the day, while rising US yields also placed most of the EM currency board under pressure too. Yesterday’s session started with the greenback holding a bullish bias after the DXY index failed to take a leg lower as it traded beyond the 90.00 handle. This bias was then confirmed by a triple whammy of economic data. Firstly, initial jobless claims data continued to improve while the ADP employment measure showed the US economy added nearly a million private sector jobs – a reading well above expectations of 680,000 net job gains. The employment data paved the way for expectations of a strong Nonfarm Payrolls print today at 13:30 BST, which markets priced into the dollar throughout the afternoon of yesterday’s session. Then came upwards revisions to the May services PMI, which rose from 70.1 to 70.4, lifting the composite from 68.1 to 68.7. To finish the string of positive data, May’s ISM Services index rose from 62.7 to 64.0, while the prices paid sub-index highlighted growing inflation concerns along with the previously released manufacturing index. Taken together and with little economic events ongoing elsewhere in markets, the data provided the dollar with a shot of adrenaline and bolstered the greenback heading into today’s pivotal labour market data release at 13:30 BST. This morning, the dollar is trading mixed across the G10 currency board ahead of the event as most of the positioning occurred in yesterday’s dramatic session. There is little else of note in today’s calendar from the US, placing even more emphasis on the May labour market report released shortly after midday.
Yesterday marked the biggest intraday rally in USDCAD since the 18th of March as the loonie didn’t get an exemption to joining the US dollar show. While previously, due to the interconnected nature of the North American economies, the loonie was more sheltered to bouts of US dollar appreciation on the back of strong data. However, there was no sick note for the loonie yesterday as it retraced from recent highs as the greenback surged onwards, despite WTI sitting firm above $69 per barrel. Today, it could be much more of the same for the loonie as May’s Labour Force Survey is likely to print in stark contrast to a very strong US Nonfarms Payroll release at 13:30 BST. In Canada, the labour market likely felt the impact of tighter measures again after last month’s 207,100 decline in employment, with expectations sitting at a -25k net employment print. In addition to this, with seasonal workers entering the job market, like students breaking for Summer, the participation rate is likely to rise and place further upwards pressure on the current 8.1% unemployment rate. With the US labour market data expected to be strong, with wage growth continuing as frictions in the US job market continues to force employers to pay more, afternoon release could be one-way traffic for the loonie.