Dollar up; Brexit developments dominate sterling movements

XM Investment Research Desk: The dollar index, a broad gauge of dollar strength, was standing moderately higher on the day in late European session trading with dollar / yen up on the day and not far from the day’s high of 112.49 – a one-and-a-half-month high for the pair. The markets are likely to experience dollar volatility as the Federal Reserve will complete its two-day policy meeting later today. It is widely anticipated that the central bank will keep interest rates unchanged, so investors will be focusing on guidance for a June rate hike. The odds for a June rate increase materializing are currently at 63.8% based on CME Group 30-Day Fed Fund futures prices.

Regarding US data, the US private sector added 177,000 jobs in April according to the ADP jobs report, surpassing expectations by 2,000 but posting its slowest job growth since October last year. Additions during March were downwardly revised to 255,000 from the previous 263,000. Dollar / yen initially fell after the release of the data but quickly rebounded to more than make up for the loss. The non-farm payrolls report, which includes private as well as public employment, will be released on Friday.

In other US releases later in the day, the ISM non-manufacturing PMI figure for April was released at 57.5, topping analysts’ forecasts at 55.8 and March’s respective number at 55.2. This marks the eighty-eighth straight month of growth for the service sector. Versus the yen, the greenback gained after the release of the data to reach an intraday high of 112.49.

The Eurozone preliminary flash GDP estimates for the first quarter of the year came in line with projections. Specifically, the numbers showed GDP expanding by 1.7% year-on-year while growth during the fourth quarter of 2016 was upwardly revised to 1.8% from 1.7% before. On a quarterly basis, economic growth stood at 0.5%, the same pace is in the previous quarter. For comparison purposes, the Eurozone first quarter annualized growth rate is at 1.8% with the respective number for the US standing at 0.7%.

Other Eurozone data pertained to producer prices for the month of March. On a monthly basis, prices declined 0.3%, faring worse than projections of a 0.1% decline. During February, prices remained flat month-on-month. Annual data showed producer prices increasing 3.9% in March. This was below expectations of a 4.1% rise and the 4.5% recorded in the previous month. The market reaction to producer price data, which were released alongside the aforementioned GDP figures, was mild. Euro / dollar experienced a minor fall as the data hit the markets but was quick to recover on those losses. The pair was last slightly down from the day’s open and above the 1.09 handle.

Turning to the UK construction PMI number for April, it came in at the four-month high of 53.1, beating estimates for a reading of 52.0 and the 52.2 from the previous month. This builds on the momentum from yesterday’s strong manufacturing PMI figure while the PMI for the services sector, by far the largest contributor to UK GDP, will be released tomorrow. Sterling barely gained relative to the dollar and the euro on the upbeat number as Brexit talks and the likelihood that negotiations to leave the European Union will be difficult -especially after this past Saturday’s summit by the remaining EU member states- seem to be outweighing positive data releases. Pound / dollar was down on the day as well as marginally below the 1.29 level, while euro / pound was up on the margin from the day’s open of 0.8444 during late European session trading.

Closing with oil, the Energy Information Administration’s (EIA) weekly report showed US crude oil inventories falling far less than expected. As a result, WTI crude oil fell below the day’s open after previously trading above it to post a new one-month low of $47.32 a barrel. Brent crude was also last down half a percent on the day, trading at $50.23 a barrel.

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