US Dollar

Weekly Update: USD Dented by US Payrolls, Pound Rallies

The Pound recovered from losses at the start of the week to climb higher after the UK’s services PMI revealed the sector grew at its fastest rate in 24 years.

Meanwhile, the US Dollar benefitted from several upbeat US data releases before plunging as May’s payrolls report fell below expectations.

Pound Buoyed by Impressive Service Sector Activity

GBP/EUR – Unchanged on the week’s opening levels

GBP/USD – Unchanged on the week’s opening levels

The Pound finished the week advancing against most of its peers after the UK’s finalised May services PMI was upwardly revised to a 24-year high as the sector benefitted from more of the UK economy reopening last month.

However, fears over rising cases of the Delta variant of coronavirus threatening to delay the UK lifting lockdown restrictions on 21 June limited GBP exchange rates. Sterling came under pressure despite almost 50% of UK adults now being fully vaccinated and comments from Prime Minister Boris Johnson suggesting the government’s plans to end restrictions will go ahead.

Looking ahead, Sterling will remain sensitive to coronavirus headlines as the announcement on ending lockdown draws nearer, while the UK’s GDP data could support the Pound as 2.5% growth is forecast for April.

Euro Retreats after Mid-Week Gains

EUR/GBP – Unchanged on the week’s opening levels

EUR/USD – Down one cent on the week’s opening levels

The Euro tumbled at the end of this week due to its negative correlation with a surging US Dollar, and a worse-than-expected -3.1% slump in Eurozone retail sales.

Strong Eurozone data had boosted EUR exchange rates as May’s finalised manufacturing PMI showed record factory activity and the bloc’s inflation rate hit 2%, which is at the top of the European Central Bank’s (ECB) target range.

Turning to next week’s session, the ECB’s latest rate decision could be the main driver of EUR movement. After inflation rose sharply again in May, investors will look for any signs of tightening monetary policy in accompanying policymaker comments.

US Dollar Plunges Following Disappointing US Payrolls

USD/GBP – Unchanged on the week’s opening levels

USD/EUR – Up one cent on the week’s opening levels

The US Dollar enjoyed significant fleeting gains this week after ADP employment change data, initial jobless claims, and ISM manufacturing and services PMIs all beat forecasts.

After a Federal Reserve official suggested it is time the central bank start discussing tapering, the upbeat data suggested a US recovery could be underway and fuelled speculation the Fed may tighten monetary policy sooner than expected, boosting USD. However, US non farm payrolls data disappointed and fell below forecast, potentially giving the Fed reason to maintain its policy stance, which sent the US Dollar tumbling.

Looking ahead, speculation about the Fed tapering monetary policy is set to remain a key driver in USD exchange rates ahead of May’s US inflation rate data, which is forecast to surge to 4.7%. With rising inflationary pressure, more Fed officials could join calls for tapering and drive volatility in the ‘Greenback’.

Australian Dollar Volatile as Victoria Remains in Lockdown

AUD/GBP – Unchanged on the week’s opening levels

AUD/USD – Down one cent on the week’s opening levels

The Australian Dollar started this week making gains on a risk-on market mood and Australia’s better-than-expected 1.8% first quarter GDP reading offsetting the Reserve Bank of Australia’s (RBA) dovish comments from its latest policy meeting.

However, souring market sentiment at the end of the week and the announcement that Victoria, Australia’s second most populous state, had lockdown extended by another week due to a rising coronavirus cases caused AUD exchange rates significant losses.

High-impact business and consumer confidence data released next week could provide the ‘Aussie’ with some support if morale remains high, but rises in coronavirus cases or extended lockdowns could dent AUD again.

Key Data

Jun 7 EUR German Factory Orders (Apr)

Jun 8 EUR Eurozone GDP (Q1)

Jun 8 EUR German Economic Sentiment (Jun)

Jun 8 EUR German Industrial Production (Apr)

Jun 8 AUD NAB Business Confidence (May)

Jun 9 AUD Westpac Consumer Confidence (Jun)

Jun 9 AUD RBA Kent Speech

Jun 10 USD Consumer Price Index (May)

Jun 10 USD Initial Jobless Claims (5/Jun)

Jun 10 EUR ECB Interest Rate Decision

Jun 11 USD Michigan Consumer Sentiment Index (Jun)

Jun 11 GBP Industrial Production (Apr)

Jun 11 GBP UK GDP (Apr)