Weekly Currency News: The U.S. Non-Farm Payrolls might clear the path for the Fed

The dollar advanced last week, and extended gains on Monday, amid increasing expectations of monetary tightening action by the Federal Reserve, which were confirmed on Friday by Fed Chair, Janet Yellen who stated that the next rate hike might tale place “in the coming months”.

The pound remained well bid supported by a series of EU referendum polls in the UK, which are showing an increase of the support for the option to remain in the EU.

This week, U.S. Non-Farm Payrolls report will be of particular interest, as it takes place less than two weeks before a key FOMC meeting. Furthermore, we will pay attention to the ECB Monetary policy decision, and the manufacturing activity figures in the Eurozone, UK and the U.S.

Last week in currency markets

• EUR/USD: fresh 10-week lows sub 1.1100
• GBP/USD: reaches levels above 1.4700, nearing 2016 hig
• EUR/GBP: dives to 3-month lows at 0.7565
• USD/JPY: surges above 111.00 on Fed’s hawkish tone
• USD/CHF: extends rally above 0.9900

Main events this week:

U.S. Dollar

The U.S. Calendar opens on Tuesday with the U.S. personal income and personal spending figures. Sharp increases on the income, and especially on the expenditures would pressure the Fed to increase interest rates, and, in that sense, they might fuel dollar strength.

On Wednesday the U.S. ADP employment change will be closely monitored by the markets to assess the direction of Friday’s Non-Farm payrolls data. A strong ADP employment reading might increase dollar bets.

 Also on Wednesday the ISM Institute will release the U.S. ISM Manufacturing PMI. Manufacturing activity is expected to have ticked down in April. We do not expect a great influence on the dollar from this indicator unless the final reading is sharply different from the expectations.

On Friday we will have the last U.S. non-farm payrolls and average earnings reports before the Federal Reserve monetary policy meeting. A positive employment report would certainly strengthen the hawkish side of the Fed policy committee and therefore, it might increase buying pressure on the dollar.

Euro

The Eurozone calendar opens on Tuesday, with the preliminary Consumer Price Index. According to the advanced estimations, inflation might have contracted for the fourth consecutive month in May. Unless there is a positive surprise here, we expect this indicator to be neutral to negative for the euro.

On Wednesday, Markit Economics will release the final Eurozone Manufacturing PMI, which is expected to be unrevised, at 51.5. We do not expect to see relevant volatility from this indicator.

The main Eurozone event this week will be the ECB monetary policy decision and the ensuing statement. In a context of resilient negative inflation and weak economic growth the Bank might consider further monetary easing measures. Any comments on that line might send the euro lower.

British Pound

The UK calendar will be very thin this week. The most relevant indicator will be the Markit Manufacturing PMI, on Wednesday. According to the experts’ forecasts, manufacturing activity contracted for the second consecutive month in May, although at a slower pace than in April. This indicator might have a moderately negative effect on the pound.

Japanese Yen

The main indicators of in the Japanese calendar will be released on Monday:

April’s household spending is seen contracting for second consecutive month. Consumption has declined in five out of the last six months, which casts serious doubts about the momentum of Japanese economy.

At the same time, the preliminary Japanese industrial production is likely to show a contraction in factory output, adding concerns about the economy. The yen might suffer on Monday it the final readings confirm the negative consensus on an string of Japanese indicators.

 Economic Calendar