EUR / USD
The Euro-Zone PMI manufacturing index was revised slightly higher to 44.8 from the flash reading of 44.6. The headline Euro-Zone inflation rate declined to 6.1% for May from 7.0% for April and below consensus forecasts of 6.3%. The core rate also declined to 5.3% from 5.6% and below expectations of 5.3%.
The Euro managed to resist further selling despite weaker than expected data with the Euro holding just above 1.0660. ECB President Lagarde maintained a hawkish policy stance with comments that interest rates needed to increase further and that the bank cannot say that it is satisfied with the inflation outlook.
US ADP data recorded an increase in private payrolls of 278,000 for May following a revised 291,000 increase the previous month and above consensus forecasts of 175,000. The gains were concentrated in the leisure sector and there was a significant decline in manufacturing jobs. There was a further slowdown in wages growth, especially for job changers. The dollar briefly strengthened after the data, but failed to hold the gains and the Euro recovered ground.
The ISM May manufacturing index edged lower to 46.9 from 47.1 which was marginally below consensus forecasts and the seventh successive reading in contraction territory. Production did increase marginally for the month, but new orders contracted at a faster rate.
Employment also increased slightly on the month while prices moved slightly lower on the month with the index below 45.0.
The dollar overall lost ground after the data with the Euro back above the 1.0700 level. The dollar continued to lose some traction and the Euro advanced to 1.0770 on Friday. The latest US employment report will be watched very closely with consensus forecasts for an increase in payrolls of around 200,000.
The dollar edged higher after Thursday’s European open, but was held below 140.00 against the yen. US initial jobless claims increased slightly to 232,000 in the latest week from 230,000 previously and close to consensus forecasts of 235,000 while continuing claims increased marginally to 1.80mn from 1.79mn.
The challenger data recorded 80,000 layoffs in May from 67,000 the previous month and an annual increase of over 285%. Excluding 2020, layoffs for the first five months of the year were the highest since 2009 with the lowest hiring figure since 2016.
Revised data recorded an increase in unit labour costs of 4.2% from the flash figure of 6.3%. Treasuries overall post gains after the batch of US data with the 10-year yield declining to around 3.60%. In this environment, the dollar lost traction with a move below the 139.00 level against the Japanese currency.
Philadelphia Fed President Harker stated that it’s time to stop raising rates for at least one meeting, especially with consumer spending less buoyant.
Futures markets indicated that the chances of a rate hike by July had retreated to around 60%, limiting dollar support and it traded around 138.80 on Friday.
UK mortgage approvals declined to 48,700 for April from a revised 51,500 the previous month and well below consensus forecasts of 54,000. There was also a net decline in mortgage lending. Excluding the covid period, this was the largest decline in lending since the survey started in 1993. Although the overall increase in consumer credit held steady at £1.59bn for the month, the overall increase in lending was held to £0.2bn from £1.6bn previously.
Sterling was resilient despite reservations surrounding the housing sector with expectations of further Bank of England rate hikes continuing to provide net currency support. After holding above 1.2400, Sterling moved higher to trade significantly higher and regained the 1.2500 level as the dollar lost ground.
The Euro remained on the defensive and dipped to fresh 5-month lows at 0.8570.
The latest Bank of England survey recorded that firms plan a slower rate of prices and wages over the next few months. Overall inflation expectations did, however, move higher on the month. Sterling traded around 1.2530 against the dollar on Friday with a slight Euro recovery to 0.8590.
The Swiss PMI manufacturing index retreated to 43.2 for May from 45.3 previously which was below expectations of 44.5 and the fourth successive month in contraction territory. The franc overall edged lower, although global moves dominated with the Euro advancing to 0.9750 while the dollar posted net losses to below 0.9100.
Global yields will remain a key element with the dollar retreating to just below 0.9050 on Friday.