The US dollar enjoyed a strong end to the week, ahead of the release of the April nonfarm payrolls report, as well as anticipated wage growth and jobs growth figures.
The unemployment rate is expected to remain at 3.8%, while April’s job growth is earmarked at 181,000, a healthy figure, despite its decrease from March. Nonfarm payrolls are also expected to exhibit a small growth. Investors have identified these data to prove the difference between whether the market reacts to the increasing likelihood that the Federal Reserve won’t cut its interest rates next year.
The European Central Bank is remaining cautious over the slow-down across Europe, but there was positive news reported from the continent this week. Italy's economy expanded by 0.2%, pushing them out of a technical recession. Spain's economy grew by an above-forecast 0.7% in the same three months and the euro zone as a whole also beat expectations with 0.4% growth. The news came as something of a surprise to the market and the euro made gains of 0.3% against the US dollar.
Chinese data also had an impact on the euro this week. The results were weaker than expected and showed the impact of the trade war with the US. This had a knock on effect for Europe’s economy; stocks for basic resources have a heavy exposure to China and fell when the results were released. European markets finished lower after the Bank of England decided to keep rates steady overnight.
After making steady gains throughout the week, an experiencing a dip in momentum, the pound has held its strength going into the weekend. This comes as investors evaluate the results of the UK’s local council elections, which spell concern for the government in regards to public approval, however appear not to have been as damaging as first feared.
The local elections saw a rise in the number of seats for the Liberal Democrats (the pro-second Referendum party), at the expense of seats previously held by the Conservatives and the Labour Party. Last week it was widely predicted that the Tories could be set to lose 1000 seats, spelling instability for PM Theresa May and for the pound. However, as results still flow, investors have interpreted the 400+ seats lost by the Conservative government as an avoidance of a bloodbath.
Despite benefitting earlier in the week from the Fed’s decision to keep US interest rates as they were, the Canadian dollar was back under pressure. If a rate cut isn’t on the cards, could that mean a rate hike is? This sentiment boosted the US dollar and undermined Bank of Canada’s Governor Stephen Poloz’s previous hint at the possibility of a better second half of the year for the Canadian dollar.
US employment data are due on Friday, with it widely believed that April has added US jobs and will strengthen the greenback.
The JPY remains unchanged on the fourth day of the long Japanese vacation, following the enthroning of Emperor Naruhito. There were no Japanese economic news or data.