Pressure on the dollar came from reports of a ceasefire between Lebanon and Israel, which is a condition for a broader peace deal between the main participants in the Middle East conflict — the United States and Iran. In addition, according to the latest statements by U.S. President Donald Trump, Iranian authorities have agreed to halt the development of their nuclear program, which clearly strengthens investors’ hopes for a quick stabilization of the situation in the region, even though limited military actions are still continuing.
It is worth noting that in the near future, market participants will focus on monetary factors, which could lead to a renewed upward movement in the dollar. The May employment report from Automatic Data Processing, based on a survey of about 400.0K business sources, was published the day before and came in positive: the figure increased from 105.0K to 122.0K, exceeding the forecast of 118.0K, confirming the resilience of the sector under current crisis conditions.
Tomorrow, federal employment and unemployment data will be released. If they also come in strong, with employment rising by 85.0K and unemployment holding near 4.3%, an increase in borrowing costs by the U.S. Federal Reserve in the medium term will become a very likely scenario. In this context, the latest comments from Dallas Federal Reserve President Lorie Logan are notable: she believes that monetary policy may be slightly “more accommodative” than necessary, adding that steady economic growth combined with high corporate profits raises concerns, and the regulator may have to raise interest rates by the end of the year to contain price pressure.
Eurozone
The euro is strengthening against its main competitors — the yen, the U.S. dollar, and the pound.
Today, April retail sales data in the eurozone was published and came in mixed: month-on-month, sales fell by 0.4%, more than experts had expected (–0.3%), while year-on-year growth slowed from 2.1% to 1.0%, compared with a forecast of 0.3%. Overall, European consumers are minimizing spending amid economic uncertainty and worsening financial conditions. Tomorrow at 11:00 (GMT+2), investors will focus on first-quarter gross domestic product data, which is expected to show a correction from 0.2% to 0.1% quarter-on-quarter and from 1.2% to 0.8% year-on-year, putting pressure on the European currency.
United Kingdom
The pound is losing ground against the euro but strengthening against the U.S. dollar and the yen.
May construction business activity data was published today: the indicator fell from 39.7 points to 38.2 points, compared with preliminary estimates of 40.4 points. Overall, activity slowed at the sharpest pace in six years, as economic uncertainty and faster inflation led to a sharp decline in new work volumes. The housing sector is seeing the steepest decline, while commercial construction volumes remain stable for now. Management reports a significant increase in production costs and continued supply disruptions. In addition, companies have been reducing staff for 17 consecutive months.
Japan
The yen is gaining against the U.S. dollar but weakening against the euro and the pound.
In the absence of significant economic releases, price movement is being driven by external factors. It is only worth noting a Reuters report citing its own sources, according to which the Bank of Japan will raise interest rates this month, as higher energy prices amid the “energy shock” caused by the Middle East conflict are significantly increasing price pressure. Experts currently estimate the probability of such a move at 80.0%. The day before, Bank of Japan Governor Kazuo Ueda said that officials need to comprehensively discuss the consequences of tighter monetary conditions if inflation risks become more important than the decline in economic activity.
Australia
The Australian dollar is strengthening against the U.S. dollar, weakening against the pound and the euro, and showing mixed dynamics against the yen.
Traders and forex market participants are focused on April foreign trade data: exports rose by 7.2% after a correction of –2.5% a month earlier, while imports changed from 12.2% to 0.8%, allowing the trade surplus to increase to 1.791 billion Australian dollars. This was supported by higher shipments of coal and iron ore to foreign consumers, while the country mainly imported liquid fuel. Also worth noting are the latest comments from Reserve Bank of Australia Governor Michele Bullock, who said today that the regulator is closely monitoring the economic situation to assess the consequences of monetary tightening and the Middle East crisis. She also acknowledged signs that higher fuel costs may have been passed into the prices of goods and services, including new housing, and will certainly contribute to the entrenchment of elevated inflation expectations.
Oil
Oil prices are declining after reports of a ceasefire between Israel and Lebanon. However, despite diplomatic progress, the situation in the Middle East remains extremely tense: U.S. and Iranian armed forces continue exchanging strikes on infrastructure facilities, while the Strait of Hormuz, through which consumers received up to 20.0% of global oil and gas volumes before the acute phase of the conflict, remains blocked.
It is also worth noting the publication of the U.S. petroleum inventories report from the Energy Information Administration, which showed a decline of 7.974 million barrels against a forecast correction of –2.900 million barrels, while gasoline and distillate inventories increased by 3.364 million barrels and 1.502 million barrels, respectively.
