Dollar Strengthens Against Euro and Pound as Strong JOLTS Data Supports Fed Tightening Risks

April JOLTS data was published the day before, tracking the number of new job openings in the nonfarm sector and serving as an important indicator of the U.S. labor market. The figure rose from 6.887 million to 7.618 million, compared with a forecast of 6.860 million, while businesses increasingly need qualified workers, reducing the economy’s need for monetary support. Investors are now waiting for May employment and unemployment data: if the figures come in strong (employment rises by 85.0K and unemployment remains near 4.3%), tighter monetary conditions from the U.S. Federal Reserve in the medium term will become a relevant scenario.

In this context, it is worth noting comments from Cleveland Federal Reserve President Beth Hammack, who said the day before that the regulator may soon have to raise interest rates if already elevated price pressure continues to increase. Investors are also still monitoring the situation in the Middle East: participants in the conflict have again exchanged strikes on military infrastructure, while Iranian authorities earlier announced the end of diplomatic contacts with the Republican administration and the blockade of the Strait of Hormuz. However, today U.S. President Donald Trump and Secretary of State Marco Rubio said that consultations are still continuing and that some issues related to the nuclear deal are even being discussed. The market, however, ignored these statements, showing little trust in repeated signals of a quick end to the crisis amid the absence of real steps in this direction.

Eurozone

The European currency is losing ground against the yen and the U.S. dollar and showing mixed dynamics against the pound.

May business activity data was published today: the services index rose from 47.6 points to 47.7 points, compared with the preliminary estimate of 46.4 points, while the composite indicator corrected from 48.8 points to 48.5 points, not as sharply as experts had expected at 47.5 points. Similar statistics changed from 46.9 points to 48.1 points and from 48.4 points to 48.8 points, against forecasts of 47.8 points and 48.4 points, respectively. In addition, the market received a report on wholesale inflation in the eurozone: year-on-year growth accelerated from 2.0% to 4.9%, which, together with the increase in the consumer price index to 3.2% over the same period, significantly raises the likelihood of tighter monetary parameters from the European Central Bank in the near future.

United Kingdom

The pound is weakening against the yen and the U.S. dollar but showing mixed dynamics against the euro. May business activity data was published today: the services index fell from 52.6 points to 49.7 points, less sharply than experts had expected at 48.5 points, while the composite indicator declined from 52.7 points to 49.3 points, compared with a forecast of 47.9 points. Under the influence of the energy crisis, businesses are minimizing activity, which will certainly put pressure on the national economy and affect Bank of England decisions. Most experts estimate the probability of keeping the current borrowing cost unchanged at the June meeting at 90.0% and expect one rate increase by the end of the year.

Japan

The yen strengthened significantly against its main competitors — the pound, the U.S. dollar, and the euro. The driver of the upward movement was reports of a new currency intervention by the Japanese government, although they have not been officially confirmed. In addition, May business activity data was published today: the services index fell from 51.0 points to 50.0 points, reaching the edge of stagnation, while the composite indicator declined from 52.2 points to 51.1 points. Thus, current dynamics allow the Bank of Japan to move toward another increase in borrowing costs. In this regard, today’s comments from Bank of Japan Governor Kazuo Ueda are worth noting: he said officials need to comprehensively discuss the consequences of higher interest rates if inflation risks become more important than declining economic activity.

Australia

The Australian dollar is gaining against its main competitors — the euro, the pound, the yen, and the U.S. dollar. Investors and forex traders are focused on Australia’s first-quarter gross domestic product data, which came in weak: quarter-on-quarter, the economy grew by 0.3%, below both the forecast of 0.5% and the previous reading of 0.9%, while year-on-year growth reached 2.5% versus 2.7%. The slowdown was driven by a decline in foreign trade, which could not be offset by business investment. In addition, May services business activity data showed a correction from 50.7 points to 48.7 points, less sharply than expected at 47.7 points, while the composite indicator also fell from 50.7 points to 48.7 points. This may contribute to a delay in the timing of another monetary tightening by the Reserve Bank of Australia.

Oil

Oil prices are trying to recover previously lost positions.

They are being supported by the escalation of the Middle East conflict: over the past day, the United States and Iran again exchanged a series of strikes on infrastructure, which could develop into a new round of full-scale military confrontation. Meanwhile, the Strait of Hormuz remains blocked, depriving the global economy of around 20.0% of oil and gas flows. At the same time, the American Petroleum Institute report published the day before recorded a sharp decline in crude oil inventories by 6.750 million barrels, compared with a forecast of 3.600 million barrels. Today at 22:30 (GMT+2), investors will focus on similar statistics from the U.S. Energy Information Administration, and according to forecasts, inventories may decline by 2.900 million barrels, supporting energy prices.