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Services sector slow-down hits dollar – upbeat Draghi helps euro

USD

The dollar faltered on Wednesday after data showed a slow-down in the services sector which reigned in expectations of an early monetary policy hike.

Non-Manufacturing Composite ISM in May fell to 55.7 from 57.8 previously; when analysts had expected it to fall to 57.0.

Services PMI decreased to 56.2 from 56.4, when it had been forecast to remain unchanged.

Other data was upbeat, however, with ADP Employment Change coming out at 201k – just beating expectations of 200k.

The Trade deficit narrowed in April to -40.9bn from -50.0bn in the previous month of March , beating estimates of -44.0bn. The deficit had ballooned in March due to the resolution of a port dispute in California which had held up goods and led to a sudden influx of Imports.

EUR

The euro rose on Wednesday after Mario Draghi delivered an upbeat statement from the ECB’s policy meeting on the outlook for growth and inflation in the euro-area.

Progress on a resolution to the Greek-institutional creditor deadlock also led a rise in the single currency, whilst data showing a fall in the unemployment rate to 11.1% from 11.2% previously also helped support the currency.

Draghi’s message was that the ECB’s monetary policies had helped support a recovery in the euro-zone, that both growth and inflation had risen steadily in 2015 and that the outlook for the region – particularly in 2016 was much better.

When he said the central bank would continue with its QE until the pre-ordained end date in September 2016 German Bund yields started climbing again.

Draghi also said that the Greek economy was viable and that any agreement made between the institutions and Greece would have to be ‘strong’ by being fiscally sustainable, socially fair and generous.

GBP

The pound traded marginally higher on Wednesday – but more due to the action of counterparts rather than the its own drivers, since Services PMI saw a fairly substantial slow-down.

Sterling weakened early in the day after the release of Services PMI, which showed a lapse to 56.5 in May from 59.5 previously, when a drop to 59.2 had been forecast. Interpreted in the context of overall performance, however, the results still showed the sector in expansion territory (above 50) and the fall had been from a high watermark of almost 60.0.

Against the dollar the pound rose as the U.S also saw a slow-down in its services sector, whilst versus the euro sterling faltered after positive comments from Mario Draghi pushed up the single currency after he indicated he was optimistic about the outlook for the euro-zone economy. Against the yen the pound recovered to end higher after senior Japanese officials appeared to show no desire to talk down recent yen weakness.

JPY

The yen lost almost 50% of Tuesday’s gain versus the dollar late in the New York session.

Early Wednesday morning date showed that Japan’s services PMI edged up a level of 51.5 from 51.3 recorded in April.

Japan’s income tax revenue in fiscal 2014, which ended in March, looks certain to hit a 13 year high of around 17 trillion yen, according to data released by the Ministry of Finance on Monday. The revenue has increased as a result of rises in employment income reflecting wage growth and stock dividend income.

On Saturday the International Monetary Fund said the Bank of Japan “needs to stand ready” for further monetary easing to accelerate the country’s economic recovery, warning of the differences between the central bank and market inflation forecasts.

However BOJ board member Sayuri Shirai stated that there was no immediate requirement to expand Japan’s monetary policy, as the nations overall trend of inflation was expected to improve.

Going forward investors will closely monitor BOJ Governor Haruhiko Kuroda’s speech, scheduled tomorrow.

USD

The dollar faltered on Wednesday after data showed a slow-down in the services sector which reigned in expectations of an early monetary policy hike.

Non-Manufacturing Composite ISM in May fell to 55.7 from 57.8 previously; when analysts had expected it to fall to 57.0.

Services PMI decreased to 56.2 from 56.4, when it had been forecast to remain unchanged.

Other data was upbeat, however, with ADP Employment Change coming out at 201k – just beating expectations of 200k.

The Trade deficit narrowed in April to -40.9bn from -50.0bn in the previous month of March , beating estimates of -44.0bn. The deficit had ballooned in March due to the resolution of a port dispute in California which had held up goods and led to a sudden influx of Imports.

EUR

The euro rose on Wednesday after Mario Draghi delivered an upbeat statement from the ECB’s policy meeting on the outlook for growth and inflation in the euro-area.

Progress on a resolution to the Greek-institutional creditor deadlock also led a rise in the single currency, whilst data showing a fall in the unemployment rate to 11.1% from 11.2% previously also helped support the currency.

Draghi’s message was that the ECB’s monetary policies had helped support a recovery in the euro-zone, that both growth and inflation had risen steadily in 2015 and that the outlook for the region – particularly in 2016 was much better.

When he said the central bank would continue with its QE until the pre-ordained end date in September 2016 German Bund yields started climbing again.

Draghi also said that the Greek economy was viable and that any agreement made between the institutions and Greece would have to be ‘strong’ by being fiscally sustainable, socially fair and generous.

GBP

The pound traded marginally higher on Wednesday – but more due to the action of counterparts rather than the its own drivers, since Services PMI saw a fairly substantial slow-down.

Sterling weakened early in the day after the release of Services PMI, which showed a lapse to 56.5 in May from 59.5 previously, when a drop to 59.2 had been forecast. Interpreted in the context of overall performance, however, the results still showed the sector in expansion territory (above 50) and the fall had been from a high watermark of almost 60.0.

Against the dollar the pound rose as the U.S also saw a slow-down in its services sector, whilst versus the euro sterling faltered after positive comments from Mario Draghi pushed up the single currency after he indicated he was optimistic about the outlook for the euro-zone economy. Against the yen the pound recovered to end higher after senior Japanese officials appeared to show no desire to talk down recent yen weakness.

JPY

The yen lost almost 50% of Tuesday’s gain versus the dollar late in the New York session.

Early Wednesday morning date showed that Japan’s services PMI edged up a level of 51.5 from 51.3 recorded in April.

Japan’s income tax revenue in fiscal 2014, which ended in March, looks certain to hit a 13 year high of around 17 trillion yen, according to data released by the Ministry of Finance on Monday. The revenue has increased as a result of rises in employment income reflecting wage growth and stock dividend income.

On Saturday the International Monetary Fund said the Bank of Japan “needs to stand ready” for further monetary easing to accelerate the country’s economic recovery, warning of the differences between the central bank and market inflation forecasts.

However BOJ board member Sayuri Shirai stated that there was no immediate requirement to expand Japan’s monetary policy, as the nations overall trend of inflation was expected to improve.

Going forward investors will closely monitor BOJ Governor Haruhiko Kuroda’s speech, scheduled tomorrow.



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