Currency Market Analysis
Jun 03, 2015 | Currency Market Analysis
The U.S. dollar firmed but kept to a lower orbit following its biggest plunge in more than two months on Tuesday. The dollar collapsed 2 percent against the euro yesterday for its worst single day since mid-March with the single currency shooting higher on encouraging news on the 19-nation economy and signs that Greece may be closer to a breakthrough on bailout. Caution ahead of today’s announcement by the European Central Bank to stay the course with its low rate policies caused the euro to relinquish some of its robust gains from the day before. More major moves could be in store for currencies as markets digest an imminent press briefing by the head of the European Central Bank (ECB) and get wind of the U.S. jobs report on Friday. Any sketching of a brightening economic picture in Europe by Mr. Mario Draghi would tend to be supportive of the euro. But a message to stay the course with its massive bond buying stimulus could cap euro gains. Ahead of America’s Federal Reserve-impacting jobs report Friday, markets today will look to U.S. data on the monthly trade gap and private-sector hiring. Weaker U.K. services growth weighed on sterling. Canada’s dollar also lost a little ground.
The Aussie dollar remained a dominant performer for a second straight day, boosted by fading expectations for further interest rate cuts Down Under. Aussie first quarter growth proved stronger than expected, nearly doubling up Q4’s rate of 0.5 percent with a surge of 0.9 percent. That was the fastest growth in a year and above forecasts of 0.7 percent. The Aussie this week has bounced above mid-April lows after the nation’s central bank was mum on whether interest rates had further room to fall this year. Thursday brings Aussie data on retail sales and monthly trade, numbers that will also speak to the interest rate outlook.
ECB chief Mr. Draghi caused air to seep from the euro’s big rally from the day before after he renewed a pledge to stay the course on the central bank’s massive bond buying stimulus despite signs of improvement in the 19-country economy. The ECB president kept his growth outlook unchanged and said that inflation should continue to rise over the balance of the year. Although inflation has turned positive, up 0.3 percent in May, officials have a long road ahead to boost prices back toward their near 2 percent goal. Official data today showed unemployment improved to 11.1 percent in April, down a notch from 11.2 percent. Greece’s premier is in Brussels today to try to win more default-averting money. The Greek situation remains fluid which should keep market volatility choppy.
Paying U.K. denominated invoices grew a little more affordable today as sterling weakened on disheartening news on a sector of Britain’s economy that matters most. Britain’s services sector grew at the slowest rate all year as the PMI edged down more than expected to 56.5 in May from 59.5 in April. The 3-point drop was the biggest monthly dip since August 2011 and far below forecasts of a 59.2 print. The critical survey was the latest to suggest that Britain’s economy continued to lose steam in the second quarter, reinforcing views of how higher interest rates in Britain would come after the U.S. Fed moved to boost borrowing rates.
A smaller but still substantial Canadian trade deficit weighed anew on the loonie which slumped to new session lows. Canada posted a C$2.97 billion trade gap in April as imports jumped 2.5 percent and exports fell 0.7 percent. That was down from a C$3.85 shortfall in March but above forecasts to narrow to C$2.1 billion. The data was the latest to suggest Canada’s economy continued to struggle to gain traction, keeping the door unlocked to further rate cuts.
Good news today on the U.S. economy helped the dollar keep close to session highs and the Fed on track to boost interest rates. ADP reported faster private-sector hiring with its monthly survey rising 201,000 in May from 165,000 in April. The U.S. trade gap shrank more than 25 percent to $40.9 billion in April from $50.6 billion in March. The smaller deficit augurs better for Q2 growth.
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