Daily Market Update: Dollar regains some lost ground against the majors
The disappointing payrolls figures last week hit the US dollar hard.
Yesterday, it regained some of the ground lost against all the major currencies after U.S. initial jobless claims fell to 264k, versus 270k expected and 267k prior. This brought the 4-week MA down to 270k, from 277k. An increase in wholesale inventories in April, out yesterday, led to some increases in Q2 economic growth forecasts and helped the USD gained over the day against both EUR and GBP. A Reuters report stating that a large European Bank was looking to put billions of euro in vaults rather than pay the penalty for parking them with the European Central Bank caused some nerves in the market and we saw EUR suffer against the dollar as a result. These positive figures from the U.S. had little impact however, on the market view that the Fed will refrain from increasing interest rates at their two day policy meeting next week which concludes on Wednesday. The June meeting has a zero percent probability now priced in, and out to the September meeting the odds now lean heavily in favour of a no change decision, 64% to 36% according to the Bloomberg implied probabilities. It will continue to be a data dependent decision, which means that inflation, GDP and labour market figures will continue to be focused on by the markets.
GBP remains in focus with the upcoming Brexit vote. BlackRock, the world's largest asset manager, said financial markets may be under-pricing the "Brexit" risk of Britain leaving the EU. This comes after the probability of a leave vote was cut in both the betting odds and market implied probabilities. As we stood last night, after the ITV debate, this stood at 25%, according to Betfair. Yet, any polls released on the 23rd June referendum on EU membership have continued to cause movement in the exchange rates in recent sessions, showing the market remain extremely cautious ahead of the vote. The GBP has been kept under pressure against other currencies, despite the UK data or surveys recording a narrowing trade deficit, and much stronger than expected manufacturing and industrial production figures for April. The positive start to the quarter for the manufacturing figures potentially offers the possibility of a stronger Q2 than was previously expected, and the NIESR estimated 3m/3m GDP growth of 0.5% in May, again pointing to stronger GDP growth than many analysts have been anticipating ahead of the referendum vote.
Today’s release of the Canadian labour market data should be of interest to those looking at the Canadian dollar, against both the USD and GBP. There is a risk of an increase in the unemployment rate, back to 7.2%, and whilst the unemployment rate has been higher recently, the rate has, on a trend basis been moving in the wrong direction for Canada for over a year now. Growth rates in Canada have been disappointing, but there is the prospect of some improvement in conditions, thanks to the recovery in commodity prices.