ExchangeRates.org.uk - The US Dollar dipped after the latest US ADP jobs data, but there was a rebound after the latest business confidence data with the dollar index (DXY) around 104.35 after again holding above the important 104.00 level.
The Pound to Dollar (GBP/USD) exchange rate was unable to regain the 1.2800 level with a peak at 1.2795 before a retreat to 1.2760.
US Treasuries rallied from lows after the data with the 10-year yield holding just above the 4.30% level.
Overall risk appetite held firm with hopes of global disinflation, especially with oil prices holding close to 4-month lows.
The Pound to Euro (GBP/EUR) exchange rate briefly hit 1.1760 before settling little changed at 1.1750. There is scope for further choppy trading over the next two days with the ECB policy decision on Thursday and key US employment report on Friday.
According to Scotiabank the GBP/USD tone is still constructive; “The sideways drift has robbed the market of some momentum in the short run but the broader technical trend remains favourable, with the GBP’s rise backed by bullish-leaning daily and weekly trend studies.”
The US data was mixed during Wednesday, but the headline services data reading had the most impact. The ISM business confidence data for the services sector rebounded to 53.8 for May from 49.4 the previous month and well above consensus forecasts of 51.0. There was a notably stronger reading for business activity for the month with new orders in positive territory. The employment index, however, remained in contraction territory while there was a slightly slower rate of increase in prices for the month.
There was further evidence of a softer labour market. ADP data recorded an increase in US private payrolls of 152,000 for May compared with consensus forecasts of around 175,000 while the April increase was revised lower to 188,000 from 192,000. Nela Richardson, chief economist, ADP commented; "Job gains and pay growth are slowing going into the second half of the year. The labor market is solid, but we're monitoring notable pockets of weakness tied to both producers and consumers." The year-on-year increase in earnings for job stayers remained at 5.0% for the third consecutive month while the increase for job changers declined slightly to 7.8%.
According to MUFG; “Lower short-term US yields and narrower spreads versus the USD’s core peers will keep the DXY on the defensive and limit its ability to strengthen.” Thierry Wizman, global forex strategist at Macquarie pointed to the global impact and expects a firm dollar; "If low oil prices cause disinflation to become a global phenomenon again, we wouldn't expect more policy divergence, nor a weaker dollar, as this would trigger 'dovishness' everywhere."
Brian Rose, senior economist at UBS Global Wealth Management expects a gradual dollar retreat; "We're expecting the dollar to generally lose ground against other currencies once the Fed starts to cut, the dollar should be vulnerable and should give up some of its strength." He added; "We're not looking for any kind of dollar collapse. We're just talking about giving up a few percent against most major currencies."
There was little impact from the latest UK data while markets were continuing to monitor the General Election campaign.
According to Sanjay Raja, senior economist at Deutsche Bank (ETR:DBKGn); Labour's focus will likely start with ambitious supply-side policies, from planning reform to boosting employment and education.” He added; "Deeper integration with Europe could also boost potential growth, allowing for more spending further down the parliamentary period." Matthew Ryan, head of market strategy at global financial services firm Ebury expects solid Pound sentiment; "The pound continued to comfortably outperform the euro in the past month, as markets view a Labour majority as perhaps the most market-friendly outcome of the pending general election."
This content was originally published on ExchangeRates.org.uk
