Not quite a rate cut promise


If not for the JPY the USD would have been stuck in last place for a third consecutive day. The US economic data were of no help to it and the Fed chairman was heard to tell a dovish story about future monetary policy. The only US ecostat of any real significance was factory orders for April. They were 0.8% lower on the month, better than the anticipated 0.9% decline but still negative, the Match's 1.9% increase was downwardly revised to 1.3%.

Federal Reserve chairman Jerome Powell was helpful to financial market confidence but not to the USD. During a speech in Chicago he spoke of "recent developments involving trade negotiations and other matters" and said "we will act as appropriate to sustain the expansion". He stopped short of promising a rate cut - or even mentioning one - but that did not worry investors: they are yet more convinced that two will come this year.


La Repubblica newspaper reports that the European Commission is about to start playing hardball with Italy because the government is breaking the rules about budget deficits. European Budget Commissioner Guenther Oettinger said that "if the [fiscal] numbers are confirmed, we will not be able to avoid the infringement procedure". 

That is the bad news: this morning's services sector purchasing managers' index  readings told a more palatable story. All but one of them - France's 51.5 - were better than forecast and all were in the growth zone above 50. For the euro zone as a whole the services PMI was 52.9 - a tick higher on the month - and the composite reading was 51.8. The EUR is 0.3% higher on the day against the USD. 


The commodity-oriented Commonwealth dollars led the field, with the NZD in first place and the CAD and AUD sharing second. The Loonie is 0.4% firmer against the USD. Oil prices were just about unchanged on the day and there were no Canadian economic data.

The leading trio were helped by the dovish language of the Fed chairman, which sent the US dollar lower. They also received something of a boost from a perception that the US president might back away from imposing punitive tariffs on Mexican imports: Mexico's foreign minister sees an 80% chance of averting the tax.


For the first time in a while the GBP avoided an average daily loss to the other majors. It is 0.5% higher against the USD (though down by 2.5% from a month ago). This morning's UK services sector PMI provided unexpected assistance when it came in above forecast and half a point higher on the month at 51.0. 

At least as important was the US president's bullish position on trade yesterday. He promised Britain a "phenomenal" trade deal with "tremendous potential" once it has left the EU. Although there was some confusion about whether such a deal would require access to the National Health Service for US healthcare companies, investors were content to interpret the president's apparent enthusiasm as positive for the pound.


The same improved sentiment that allowed the commodity dollars to lead the way left the JPY with few buyers. The less investors worry, the less they feel the need for a safe haven. The yen is 0.1% lower against the USD.

Japan's single overnight statistic was adequate rather than exhilarating. The services PMI for May at 51.7 was two ticks below April's 51.9, missing the 52.8 forecast. The discrepancy made no difference to the JPY.

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