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    European Session – Nonfarm payrolls miss causes dollar selloff as June Fed rate hike less likely

    Today’s calendar was a busy one, with the highlight of the day being the US nonfarm payrolls report. The big miss in the May figure puts the Federal Reserve in a tricky situation after the lowest number of jobs were created in more than five years last month, making a June rate rise less likely.

    Only 38,000 jobs were created in May versus most economists’ forecasts of around 160,000. Even more disappointing news was that April’s 160,000 number was revised down to 123,000. Meanwhile, the fall in the unemployment rate to 4.7%, the lowest since November 2007, was due to a decrease in the labour force participation rate. The jobless rate was at 5% in March and April.

    The dramatic slowdown in US jobs growth last month has led markets to reevaluate the timing of the next Fed rate hike. Sentiment for the US dollar deteriorated sharply, causing a selloff in the currency.

    Adding to the bad nonfarm payrolls data were disappointing data on the US services sector. The ISM non-manufacturing PMI index came in at 52.9 in May, missing the forecast for 55.5 and was lower from April’s 55.7. Another US services sector activity report by Markit showed the PMI index fell to 51.3 in May from the 52.8 reading in April. The data indicate a slowing pace of growth in the US services sector, which is a large component of US GDP.

    The dollar tanked to break 107 yen after the disappointing payrolls number and miss on the ISM non-manufacturing PMI. Dollar/yen had risen to above 109 yen earlier in the day.

    The broadly weaker greenback helped the euro surge to break above the key $1.13 level. Gold jumped above $1240 an ounce, to the highest levels since May 24. The precious metal has an inverse relationship with the dollar and is sensitive to US interest rates. Sterling rose against the dollar to $1.4580 after the data. The pound though is on track to end the week lower after several polls this week suggested a shift towards the “leave” camp, giving a slight gain for those in favour of voting for Britain to leave the European Union in the June 23 referendum.

    Prior to the US data, services PMI data were released for the UK and the Eurozone. UK services PMI data edged up to 53.5 in May from April’s 52.3. The Eurozone services PMI came in at 53.3 for May compared to a “flash” reading of 53.1 and flat on the previous month.

    The market’s focus now turns to Fed Chair Janet Yellen’s appearance at the World Affairs Council of Philadelphia on Monday. This will be her last chance to talk before the June 14-15 FOMC meeting. Yellen’s job has now gotten a lot more complicated after the disappointing nonfarm payrolls data today, so all eyes will be on what she has to say and if she gives any clues about the timing of the next interest rate rise.

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