Strong US data, from ADP in particular, and a report Biden was willing to reconsider his proposed corporate tax hike, helped to produce a USD rally.
- US ADP employment +978k vs 650k exp.
- US initial claims fell to 385k from 405k vs 387k exp.
- US ISM services index rose to 64.0 from 62.7 vs 63.2 exp.
The USD managed some initial strength but was then generally little changed for the rest of a fairly quiet European session. The exception was GBP, which after an initial dip in line with the general USD rise, rallied before and after the UK PMI data, with EUR/GBP dipping to 0.8590 from an open near 0.8620, and GBP/USD rallying back above 1.4180 after opening at 1.4160 and dipping to 1.4140. The final services PMI rose to its highest on record and there was a corresponding upward revision in the composite PMI for May. While GBP gains started before the PMI data, there is a history of the market leading UK data and the GBP rally seems to have been data related.
Eurozone final services PMI were of less interest, showing only a marginal upward revision with the French and German data unchanged from the provisional release. There was also a modest upward revision in the Eurozone composite PMI. Swedish services PMI released earlier also showed its highest level on record, but there was no significant move in EUR/SEK.
Afternoon saw significant USD strength as the ADP data came out much stronger than expected, recording a 978k rise on the month and initial claims dipped below 400k for the first time since the start of the pandemic. Later ISM non-manufacturing PMI also hit a new record at 64.0 in May, helping to sustain USD strength though the North American session.
The USD was also supported by a Washington Post report that Biden had offered to abandon his proposed corporate tax rate hike if Republicans would agree to a 15% minimum, raising hopes for a deal on infrastructure. EUR/USD tested and eventually touched below the recent lows at 1.2130, GBP/USD dropped below 1.41 and USD/JPY moved above 110, while AUD/USD dropped below 0.7675 for the first time since mid-April. EUR/GBP settled near .86.
Asia FX and News
- G10 FX are generally not much different from the NY close. US equity futures and US yields are also in holding pattern. The market is still awaiting the NFP report. Yen gained a little in the early Asian morning but that largely corrected. USD/JPY holds above 110. EUR/JPY dipped to lowest in a week. Japan household spending beat estimates though only up 0.1%m/m in April.
- AUD/USD and NZD/USD were flat after sell-off on Thursday without impact from local data. Aussie home loans grew lesser than expected. Investor lending growth slowed. NZ Q1 building data grew more than expected underpinned by residential construction.
- EUR/USD dipped below Thursday’s range towards 1.21. GBP/USD holding above Thursday’s lows. USD/CAD finds support from 1.21 but not extending higher by much.
AU: Home Loans Value (Apr) 3.7% m/m (Mkt: 5.4 Prev: 5.5)
Still to be released
08:30 GMT - UK: CIPS / Markit Construction PMI (May) % (Mkt: 62 Prev: 61.6)
09:00 GMT - EU: Retail Sales (Apr) % m/m (Mkt: -1.5 Prev: 2.7)
09:00 GMT - EU: Retail Sales (Apr) % y/y (Mkt: 25 Prev: 12)
12:30 GMT - CA: Employment Change (May) K (Mkt: -25 Prev: -207.1)
12:30 GMT - CA: Labor Productivity (1Q) % (Mkt: -0.9 Prev: -2)
12:30 GMT - CA: Unemployment (May) % (Mkt: 8.2 Prev: 8.1)
12:30 GMT - US: Non-farm Payrolls (May) 4cast: 400K (Mkt: 661 Prev: 266)
12:30 GMT - US: Average Hourly Earnings (May) 4cast: 0.5% (Mkt: 0.2 Prev: 0.7)
12:30 GMT - US: U6 unemployment (May) % (Prev: 10.4)
12:30 GMT - US: Private Payrolls (May) 4cast: 350K (Mkt: 600 Prev: 218)
12:30 GMT - US: Unemployment (May) 4cast: 6% (Mkt: 5.9 Prev: 6.1)
14:00 GMT - CA: Ivey PMI (May) Index (Prev: 60.6)
14:00 GMT - US: Durables Ex Transportation (Apr F) % (Mkt: 1 Prev: 1)
14:00 GMT - US: Factory Orders (Apr) % (Mkt: -0.3 Prev: 1.1)
14:00 GMT - US: Durable Goods Orders (Apr F) % (Mkt: -1.3 Prev: -1.3)
EU: G7 Finance Ministers Meeting in London