Dollar Suffers Heavy Losses on Dismal Jobs Report
What’s been happening?
Pound Sterling – UK Markets
The British pound extended its recovery vs the dollar and snapped its 4-week losing streak. Against the euro, the currency struggled to gather strength and stayed close to the multi-month lows that it set earlier in the week.
In its latest quarterly survey, the Bank of England said that the consumer inflation expectation was 3.1% compared to 3.2% seen in February. “By a margin of 55% to 7%, survey respondents believed that the economy would end up weaker rather than stronger if prices started to rise faster, compared with 56% to 6% in February,” the BoE explained. Other data from the UK revealed that the Halifax House Price Index rose 0.5% on a monthly basis in May to come in higher than the market expectation for a decrease of 0.2%.
US Dollar – US Markets
The greenback extended its slide on Friday and the US Dollar Index, which tracks the dollar’s value against a basket of six major currencies, erased more than 1% for the week to post its largest weekly loss of the year.
The data published by the U.S. Bureau of Labor Statistics on Friday showed that the nonfarm payroll employment increased by 75,000 in May and missed the market expectation of 185,000 by a wide margin. Moreover, April’s reading got revised down to 224,000 from 263,000 and age inflation, as measured by the average hourly earnings, ticked down to 3.1% on a yearly basis. Following the data releases, the CME Group FedWatch tool’s probability of a rate cut in July rose to 75% and the odds of 3 rate hikes in the remainder of the year increased to 65%.
However, U.S. President Trump over the weekend announced, via Twitter, that they have reached and signed an agreement with Mexico. “The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended,” Trump said. If that development helps the 10-year U.S. Treasury bond yield stage a relief rally, we could see the greenback start recovering its losses.
Euro – European Markets
The shared currency preserved its strength against its rivals and closed the day higher against both the dollar and the pound sterling despite some disappointing macroeconomic data releases. Germany’s Destatis on Friday reported that the industrial production contracted by 1.9% in April on a monthly basis and dragged the annual growth rate down to -1.8% from 0.9%. Other data from Germany revealed that the trade surplus narrowed to €17 billion in April from €20 billion in May.
Commenting on the euro zone's economic outlook, European Central Bank (ECB) Governing Council member Ewald Nowotny echoed Draghi’s comments by saying that there was no risk of a recession but the economic slowdown was apparent.
What’s coming up?
UK: The UK’s Office for National Statistics will release the industrial production, manufacturing production, trade balance, and April real GDP growth data on Monday.
US: JOLTS job openings will the only data featured in the U.S. economic docket.
EU: Eurozone Sentix Investor Confidence will be published on Monday.