US CURRENT SITUATION
The US dollar is on shaky ground, losing against the G-10 currencies this morning. Fed Chair Powell’s comments triggered a broad sell-off after he signalled that the central bank will “act as appropriate to sustain the expansion”. Market reacted quickly, taking it as a cue that the Fed is running out of patience and could move towards easing its monetary policy. Protracted trade tensions and recent soft data are also starting to undermine the greenback. ADP Non-Farm employment report was disappointing with private sector job increasing by 27,000. This was below market consensus of 185k. The market remains cautious amidst growing trade tensions. Mexican and the US officials are due to meet to try to diffuse another trade flare-up between the two nations and avoid an imminent guacamole tax. Gold is trading 1.20% higher and traditional safe-haven currencies are also on a firm footing.
CANADIAN DOLLAR
USD/CAD plummets to a two week low, after market increased its bets that the Fed could be opened to rate cuts. The greenback is unable to halt its slide, down 0.2% against the loonie. Trade tensions and disappointing ADP employment report are the main drivers today. The Canadian dollar is expected to trade along general market sentiment, ignoring soft performance in the oil futures market.
EURO
EUR/USD is chipping on the 1.13 mark, buoyed by slightly better than expected PMI reading and amidst a general weakness in the US dollar. Eurozone PMI Composite Output Index rose to 51.8 last month, its highest reading in three months, on the back of a strong service sector. Germany also recorded a growth easing fears of recession. The economic conditions still remain fragile. The European Central Bank meets tomorrow and market may adopt a wait and see strategy before any policy update announcement.
BRITISH POUND
The Sterling joins other major currencies in the party, trading 0.20% higher against the greenback. GBP/USD now extends its gains for the four consecutive sessions. Brexit seems to have taken a pause. The market focus is on dovish comments from Powell. A pick-up in the service sector is also adding to temporary positive mood around the Pound. UK Services PMI moved to 51.0 in May, signalling a marginal increase for the second month. We expect the pair to trade around current levels with Brexit uncertainty capping any further gains.
JAPANESE YEN
Dovish comments from Fed Bullard and Powell triggered a general USD sell-off, pushing the USD/JPY to a five-month low. Investors are turning increasingly cautious: trade tensions between Beijing and Washington are expected to linger longer with both parties turning the knob to higher non-trade pressures. A disappointing ADP report is also undermining any prospects of an immediate rebound in the US dollar.
