Currency Market Analysis

Jun 01, 2015 | Currency Market Analysis

Global Themes

The U.S. dollar started a formidable month of June with a solid gain, holding near 12-year highs against the yen and notching its strongest in nearly a month against its U.K. counterpart. Both Greece and the U.S. economy will dominate the opening week of June with the former missing an end of May deadline to reach a deal for more rescue cash to stave off imminent default and potential expulsion from the euro. Athens is due to repay the IMF around €300 million this Friday and has bigger amounts to pay over the coming weeks. If that’s not enough, America’s always influential monthly jobs report is also due Friday. The world’s biggest economy is expected to have added more than 200,000 for a second straight month in May. A strong jobs report this week would renew confidence in an economy that contracted to start the year and seemingly tug a little closer the timing of a U.S. interest rate hike, a dollar-positive outcome. Lackluster U.K. factory growth weighed on sterling. Buyers of Norway’s crown are catching a big break today as the Scandinavian currency crashed more than 1.5 percent to five-week lows. U.S. reports are due today on the consumer and inflation.


Huge price break for NOK buyers today as shockingly poor Norwegian factory data stirred rate cut expectations which sent the crown tumbling about 2 percent to five-week lows. Norway’s factory PMI unexpectedly shrank, plunging to 46.6 in May versus forecasts of 50.1 from 50.2 in April. The news increased expectations of a rate cut as soon as the central bank’s coming meeting on June 18.


The loonie started June with a swoon, keeping in close range of mid-April lows against its U.S. peer. Oil prices slipped below $60, weighing on the commodity-driven Canadian dollar. Fresh concerns about the shape of the northern economy also weighed on the loonie after Canada on Friday reported that first quarter growth contracted 0.6 percent on an annual basis, the first reading in the red in nearly four years. Big data on the loonie calendar this week include trade on Wednesday and employment on Friday.


With inflation in Britain running at multi-decade lows under zero, the pound is vulnerable to any underwhelming news on the health of Europe’s No. 3 economy. Buyers of the U.K. currency today are catching it at its most affordable price in nearly a month after Britain’s factory sector PMI grew in lackluster fashion, printing at 52.0 in May compared to forecasts of 52.5. Softer U.K. data suggest that British interest rates will adhere to record low levels of 0.50 percent for longer, a dovish view compared to expectations for U.S. borrowing rates to increase this year.


The euro weakened to within a penny of recent late April lows against its U.S. peer, pressured by Greece’s inability to win more aid money to keep afloat and news that area factory growth got marked down in May. The euro will continue to serve as a barometer of market confidence in Greece getting its fiscal house in some semblance of order. A risk facing EUR buyers would be if Greece should secure more rescue money to help it make good on its daunting financial obligations this month which would help erase much uncertainty that has weighed on the euro.


The dollar saw some of its session gains evaporate after subdued news on inflation and consumer spending suggested an even lower risk of an imminent Fed rate hike. Core inflation slowed to an increase of 1.2 percent annually in April which was down from 1.3 percent in March and further below the Fed’s 2 percent bullseye. Consumer spending was unchanged with a zero reading in April compared to forecasts of a 0.2 percent increase. Personal spending though got upgraded to a 0.5 percent gain last time. And in a good sign for future consumer spending, personal income jumped 0.4 percent which was a tick better than forecast. The big driver for the dollar this week should be Friday’s U.S. nonfarm payrolls report for May with hiring seen up 225,000 and unemployment holding at a seven-year best of 5.4 percent.

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