Daily Market Pulse

USD

The Dollar Index began the month on the back foot yesterday, closing down over 0.6%. 

The decline put the Greenback on pace to experience its most significant weekly drop since mid-January as chances increase for a Fed hold at their June meeting.  However, the Greenback is inching higher after the US jobs releases.

The much-anticipated May Non-Farm Payrolls release showed the US economy added 339K jobs in May, surpassing market expectations of 190,000 and marking the highest increase in four months.  The job gains were seen in various sectors, including professional and business services, government, and healthcare, to name a few.  Meanwhile, employment in other major industries remained relatively stable.

However, US unemployment rose to 3.7% in May, the highest since October 2022, although still historically.  Meanwhile, the labor force participation rate remained at 62.6%, maintaining its highest level since March 2020.   

EUR

The Euro is inching lower this morning after the release of US Non-Farm Payrolls sent EUR/USD down around 0.1% - although still well off the two-month lows seen on Wednesday.   

The Euro is getting help from hawkish ECB rhetoric, including ECB President Christine Lagarde emphasizing the need for further policy tightening while stating that there was no clear evidence of underlying inflation peaking.  At the same time, ECB meeting minutes suggested the possibility of at least two more rate hikes this year.  As it stands, markets are pricing in an 85% chance of a 0.25% hike in June and another in July.

Attention now shifts to Monday’s PMIs and Tuesday’s Retail Sales releases to gauge the temperature of the Eurozone and its constituent economies amidst struggles with rising inflation and interest rates.

GBP

The Pound is pulling back slightly today after posting gains of nearly 0.7% against the Dollar yesterday. 

GBP/USD now is on track for its most significant one-week gain against the Dollar in six months as expectations of a plateau in US rates while UK rates remain likely to rise.  The passing of the US debt ceiling bill has also helped boost the pair this week as increased market risk appetite pulls capital out of the safe-haven Dollar.

Additionally, with UK inflation remaining high and growth staying stagnant, traders have adjusted their outlook for UK monetary policy, with markets projecting UK rates to rise to 5.32% by the end of 2023 - up from the 4.8% being priced in last month.

JPY

After posting four straight days of gains this week, the Yen is down nearly 0.3% this morning after the release of US Non-Farm Payrolls. 

In a recent statement, BoJ Governor Ueda underscored the Bank’s lack of urgency in altering its monetary policy, even though interest rates have exceeded the 2% target since last year.  Conversely, the Japanese government has unveiled plans to pursue a comprehensive approach to monetary policy, fiscal policy, and overall economic growth strategy to bring inflation back to its 2% inflation target.

 

In addition, Japanese Finance Minister Shunichi Suzuki stated that a weak Yen is detrimental to the Japanese economy due to impacts on exports, international companies, and a rise in import prices.  The comments follow an emergency meeting earlier this week that will likely see the BoJ and the Japanese government step in to support the faltering Yen.

CAD

The Loonie is up over 0.15% heading into the US session, one of the few G10s to gain against the Dollar today after surging around 0.9% against the Greenback yesterday.  USD/CAD is now on pace for its biggest weekly decline in a month as it looks to retest the May lows.

Yesterday, the C.D. Howe Institute, a Canadian think tank, released comments recommending the BoC hold rates at its next meeting, although the Monetary Policy Council was divided.  Some members recommend keeping the primary interest rate unchanged due to a slight increase in inflation and stronger-than-expected first-quarter growth, while others suggested a rate hike to 4.75%.  Additionally, some members foresee a possibility of a recession in Canada but expect it to occur later and potentially be less severe than previously anticipated.

MXN

The Peso is looking to build off its solid showing yesterday, in which it jumped over 0.7% against the Dollar – its best day of the week thus far.  In the aftermath of jobs data out of the US and Mexico this morning, the Peso is up around 0.4% on the day.

Mexico’s jobless rate rose slightly more than expected in April, coming in at 2.8% versus an expected 2.7% and showing an increase from the March figure of 2.4%. 

However, despite the modest rise, MXN traders are mostly shrugging off the data after yesterday’s Banxico commentary suggesting their hawkish approach to monetary policy is here to stay.   

BRL

The Brazilian Real continues to rally today after another batch of Brazilian and US data was released this morning.  BRL has now flipped the script on what began as a dismal week, bouncing off a two-month low back to nearly positive territory on the week.

Brazil’s industrial production declined by 0.6% in April, with 16 out of 25 industrial branches experiencing a decrease.  Compared to the previous year, industrial production dropped by 2.7%, contributing to a year-to-date contraction of 1%.

Meanwhile, inflation in Sao Paulo, Brazil’s largest city, increased by 0.20% in May, the slowest rise since September 2022.  This was less than the 0.29% expected and much less than the 0.43% seen in April. 

The release is another notch in the belt of Brazilian government officials, led by President Lula, who continue to make the case for lower rates in Brazil. 

CNY

The Yuan continues to rebound after hitting a new six-month low yesterday as it looks to avoid its fourth straight losing week against the Dollar.   Much of the move can be attributed to an improved market mood after the US debt ceiling deal and the increasing likelihood that the Fed will hold rates this month.

CNY traders will now shift focus to next week with several key data points set for release, including Services PMI on Sunday evening, which has been a bright spot in China’s otherwise gloomy economic picture as of late.  Markets expect Services PMI to come in at 57.1 for May – up from the 56.4 seen in April.