• Disappointing U.S. jobs data weighs on dollar
• UK services sector PMI beats forecasts, GBP rallies
• AUD dollar continues slide on weak GDP data
USD – The US dollar weakened against most currencies after a report showed hiring in the U.S. private sector fell short of expectations last month, which reduced the chances the Federal Reserve could wind down its stimulus program any time soon. The greenback had rallied in recent sessions on the view that some upbeat economic data could prompt the Fed to taper its $85 billion per month quantitative easing program, a mechanism viewed as negative for the U.S. currency, as it involves flooding the market with dollars. But the moderate pace of hiring seen in May's ADP report may not be enough to persuade the Fed to limit the scale of QE. U.S. private employers added 135,000 jobs in May, according to the ADP National Employment Report today, compared with economists' median forecast in a Reuters poll for an increase of 165,000.
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EUR – The euro traded range-bound against the US dollar but will most likely resume its weakening trend against the dollar over the next 12 months after wavering throughout April and May, according to a Reuters poll of 60 foreign exchange strategists and economists. The euro has fluctuated around $1.29 to $1.32 against the dollar over the last couple of months, but analysts expect the euro zone's poor economic prospects to keep piling on pressure in the months ahead. Further action from the European Central Bank would undercut the euro, with pressure growing on the bank to trim its main refinancing rate or deposit rate to new record lows.
GBP – Sterling rose against the US dollar after a survey showed Britain's dominant services sector grew more than expected in May, reinforcing views the economy would expand at a modest clip in the second quarter. The recovery also mitigated expectations that incoming. Bank of England Governor Mark Carney, who takes over in July, will resort to aggressive monetary easing in the near term. Britain's economy has basically flat-lined over most of the last two years and was only expected to grow between 0.2 and 0.4 percent per quarter through to the middle of 2014.
JPY – The Japanese yen rose against the US dollar after new Japanese growth policies fell short of expectations, hitting equities, and as investors awaited clues to future U.S. monetary policy. The Japanese currency was also boosted after a pledge by Japanese Prime Minister Shinzo Abe to raise incomes disappointed markets due to a lack of detail, weakening Japanese shares.
Commodity Currencies – The Canadian dollar slightly weakened against the US dollar ahead of Central bank Governor Poloz’s first testimony to the House of Commons scheduled for tomorrow. The Canadian currency should remain range-bound ahead of tomorrow’s testimony and ahead of non-farm payrolls due out on Friday. The Australian dollar also continued its slide, down 1 percent against the dollar and 1.5 percent against the yen. Australian Q1 GDP came in worse than expected rising only 0.6 percent q/q and 2.5 percent y/y. The New Zealand dollar also weakened, although fared slightly better than its Aussie counterpart after the release of commodity figures (mainly concentrated in dairy products) fell 1.6 percent in May. The decline follows a record 12.6 percent rise in April. Continuing weakness is expected especially with AUD/JPY as carry trades continue to unwind coupled with further disappointing data out of the region.