Fundamental Comment

This Week: US jobs report, PMI data in focus

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The most important events this week that could weigh on the movements of major currencies will be US non-farm payrolls, as well as Purchasing Managers’ Index reports from a number of major economies.

US Dollar

The U.S. dollar managed to lock its sixth straight weekly gain last week, hitting a five-month high of 94.10, taking advantage in political concerns in Italy and diminishing expectations of seeing an interest rate hike by the BOE in August. 

This week, eyes will focus on the U.S. non-farm payrolls that will give an update about the health of the labor market in the second month of the second quarter.

American employers have probably created 185,000 jobs in May and unemployment rate have lingered at 3.9 percent, the NFP report may show.

The famous jobs report along with inflation data are likely to shape the future of rate hikes by the Federal Reserve, and therefore it could affect the movements of the dollar by the end of this week.

Meanwhile, there are rising bets the Fed could hike interest rates by another 25 basis points in June amid improvement in economic data.

Core PCE price index, the Fed’s favorite measure of inflation, could show acceleration in the year ended April to 2.0 percent from 1.9 percent. That would mean reaching the Fed’s 2 percent goal. 

Market participants will also carefully watch U.S. preliminary annualized GDP, which is expected to show a downside revision to 2.2 percent in the first quarter from an advanced of 2.3 percent.

Weak economic data from the U.S., especially the NFP, could spark a downside correction in the dollar.

Euro

Last week, the euro was hit by uncertainty about the political situation in Italy as low profile Prime Minister-nominee Giuseppe Conte started selecting his cabinet team.

The most important data this week will be the euro area flash consumer price index for May and the final manufacturing PMI.  

Euro area CPI for the year ended May may signal an acceleration to 1.3 percent from a previous of 1.2 percent.

A rise in inflation could help the euro start rebounding from its lowest level in six months versus the U.S. dollar this week.

The final manufacturing PMI may confirm an ease in expansion to 55.5 in May from 56.2 in April, confirming the slowdown in the pace of growth in the first quarter.

Pound Sterling

After the release of report showing an ease in U.K.CPI inflation in the year ended April and another confirming a sharp slowdown in quarterly growth, the pound resumed its fall for a sixth straight week last week.

The U.K. lacks the release of important data this week except for the manufacturing PMI that may see a rise to 54.2 in May from 53.9 a month earlier.

Next week, investors will give more attention to the dominate services PMI figures, as well as the construction that was key driver to the strong slowdown in the first quarter.

It is worthwhile to mention that the pound has come under pressure since early April, amid diminishing expectations of an interest rate hike by the BOE in August and worries about Brexit talks. 

Commodities

Gold rose last week, halting its bearish direction that started since mid-April, on worries about trade relations between the U.S. and China and the political concerns in Italy.

Gold could its direction this week from the dollar’s movements, where the beginning of a downside correction in the dollar is likely to create more demand on gold as an alternative investment.

Shrewd investors should also keep their eyes open on any updates from U.S.-China talks and the G7 meeting. 

Regarding oil, it faced some pressure last week on some sell off from traders after the price had reached its highest level since late 2014.

Brent prices fell from above $80 a barrel last week, as Saudi Arabia and Russia consider output boost of about 1 million barrels per day during ministers meeting in St. Petersburg.

U.S. crude inventories may have risen by 0.92 million barrel in the week ended May 25 after a crude build of 5.77 million barrel a week before, according to the U.S. government EIA report forecasts.

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