Daily Market Pulse

Greenback Rallies to Kickoff the Week Ahead of ISM Services PMI
6 minute readUSD
The US Dollar is up again this morning after having its three-week winning streak snapped last week as the market weighs the chances of a Fed rate hike this month on the heels of Friday’s robust Non-Farm Payrolls data. The odds of a rate hike at next week’s meeting are below 30% after coming in over 60% last week.
Later this morning, a fresh slate of US data is set for release, headlined by May’s ISM Services PMI, which is expected to show a modest decline to 51.5 after coming in at 51.9 in April. Meanwhile, US manufacturing data is also on tap this morning. April Factory Orders are expected to post their second straight month of growth after beginning the year with two consecutive months of contraction.
EUR
The Euro is back in the red this morning and nearing the two-month low set last Wednesday as markets assess signs of easing inflation in the Eurozone against hawkish comments from ECB President Lagarde and other members. While recent data points to a slowdown in price growth, Lagarde remains adamant that Eurozone inflation levels are well above the target rate, and there is a need for further policy tightening.
On the data front, Germany’s trade surplus widened in April, reaching its highest level since January 2021. Increased exports drove this to the rest of the EU, the US, and China, while imports decreased - mainly from Russia and the UK. Meanwhile, Eurozone producer price inflation declined in April, primarily due to a significant drop in energy prices, resulting in the lowest inflation rate since January 2021.
GBP
The Pound is on track for its second straight day of noteworthy declines, down around 0.5% this morning after dropping around 0.6% on Friday. The latest moves come as UK services and composite PMIs each came roughly in line with expectations.
The UK services sector showed a slight decline in May but remained in expansion territory and near the 12-month peak seen in April. The expansion was driven by robust rises in output and new orders, fueled by demand in consumer services, tourism, and leisure. In addition, export sales increased significantly, supported by higher international visitors and demand for business services. However, the pace of job creation eased, and input price inflation rose to a three-month high, mainly due to rising wages.
JPY
The Yen is back in the red this morning after posting its first winning week since early May. JPY is now pacing to retest the six-month lows seen last Monday, mainly due to the BoJs commitment to ultra-low interest rates policy despite market pressures and persistent inflation.
In the overnight session, the au Jibun Bank Japan Services PMI came in at 55.9, the fastest expansion on record and the ninth consecutive month of growth. The rebound in customer demand and the strength in inbound tourism contributed to the increase. Additionally, the au Jibun Bank Japan Composite PMI pointed to the steepest growth in private sector activity since October 2013, driven by a record expansion in the service sector and a return to growth in manufacturing production.
CAD
The Loonie is pulling back slightly this morning after a strong showing last week that saw it gain around 1.4% against the Greenback – its best week since March.
Despite the modest decline this morning, CAD remains close to the two-week high reached last week as investors await Wednesday’s highly anticipated BoC meeting. Markets are pricing in a BoC hold, but there is an outside chance the Bank will elect for another 0.25% based on recent data out of Canada.
Loonie traders will also monitor oil prices this week after Saudi Arabia’s announcement to cut output by an additional 1 million barrels per day beginning in July.
While the initial reaction saw WTI surge more than 4% higher, prices have pulled back as traders assess the production cut against a backdrop of pressures on global oil demand coupled with the uncertainty surrounding the Fed’s rate decision next week.
MXN
The Mexican Peso is mostly flat this morning after today’s consumer confidence releases had little immediate impact on the currency.
May’s consumer confidence reading in Mexico slightly increased to 44.4 from 44.1 in April, indicating a persisting pessimism among consumers. However, improvements were observed in outlooks for households’ financial situation, Mexico’s economic outlook, and the ability to make significant purchases, while concerns remained regarding inflation and employment.
Looking ahead, May inflation data is set for release this Thursday, with headline inflation expected to pick up again after a decline in April, while the annual rate is expected to cool to 5.77% from 6.25%.
BRL
The Brazilian Real is resuming its rally this week, up over 0.2% this morning after finishing around 0.7% higher against the Dollar last week. BRL has been one of the leaders in the recent LATAM rally sparked by last week’s solid Q1 GDP printout of Brazil, surprising factory growth in China, and the sentiment boost from the US debt ceiling deal.
After an eventful week, Brazilian Real traders brace for a very quiet economic calendar this week, with May IPCA Inflation the only data point of significance on the Brazilian calendar. However, commodity prices and economic data from China, a significant trade partner for Brazil, will be on the radar for BRL traders for the week.
CNY
The Yuan is on the back foot again this morning as it descends toward the November 2022 lows seen on Thursday. The latest moves come as markets assess the chances of further Fed hikes in 2023 after Friday’s stellar jobs report. Meanwhile, CNY traders look towards data from China, including May inflation and trade data this week, to assess the domestic economic situation after a gloomy April.
Earlier, Caixin China General Services PMI for May rose to 57.1, indicating the fifth consecutive month of expansion in services activity and the second-fastest growth since November 2020. Additionally, May’s Composite PMI reached 55.6, the highest since December 2020, driven by faster output growth in the manufacturing and service sectors, although employment declined and sentiment eased.