U.S. Dollar Slips on Back of Weak Data

Isabelle Zammit
Isabelle Zammit

4 July 2019

Bearish image on US flag

During Thursday’s Asian trading session, the U.S. dollar index declined by 0.1%, reaching 96.317. This weakening is the result of weaker than expected ADP payrolls data. The latter revealed that the private sector only expanded by 102,000 jobs compared to the expected 140,000.

Furthermore, May factory orders dropped by 0.7% and June’s ISM non-manufacturing index slid to 55.1, creating even more pressure on the dollar.

Additionally, the weak data supports the idea that the Federal Reserve should cut ease the monetary policy, which is something President Donald Trump has been advocating for.

Overnight, though, President Trump accused Europe and China of engaging in a “currency manipulation game.” He tweeted that both had been injecting money into their economies and that the U.S. should take similar actions.

According to Trump, if the U.S. doesn’t follow suit, they will “continue being the dummies who sit back and politely watch as other countries continue to play their games.”

Despite the slide, there will be little movement for the dollar today as the U.S. markets are closed due to Independence Day.

The next significant move is likely to be on Friday, depending on the results of U.S. non-farm payrolls. Expectations are for an increase of 160,000 in June, compared to May’s 75,000.

Euro Still Not Attractive to Investors

Despite the weak data from the United States, the euro was unable to make any gains. In fact, the U.S. dollar recovered a little from some of its worst performance, and the pair was trading around 1.1283.

The start of the week saw investors shorting euro in favor of the U.S. dollar. Unfortunately, even with weak U.S. data, the Eurozone has been unable to recover investor confidence.

The most important news this week for investors in the euro circulates around the European Central Bank.

Mario Draghi’s successor was named this week, namely Christine Lagarde, Chairwoman of the International Monetary Fund.

Lagarde is believed to be a continuity candidate, which means she will stick to the dovish outlook the ECB practiced under the leadership of Draghi. Unfortunately, this news did nothing to boost interest and confidence in the euro.

On the other hand, the euro didn’t drop significantly either, which indicates that the decision was at least expected if not completely satisfactory.

The euro is also experiencing continued pressure as the markets aren’t certain on whether the European Central Bank will take a more dovish stance in reference to their monetary policy. Likewise, there is still some speculation around the possibility of a rate cut happening as early as this month.

U.S. Dollar Unable to Maintain Recovery

The beginning of the week saw the U.S. dollar rebound thanks to a successful meeting between the U.S. and China at the G20 Summit in Osaka, which resulted in another truce that helped to further ease trade tensions between the countries.

However, the U.S. dollar hasn’t been able to maintain the momentum. The markets are still firmly convinced that the Fed will cut rates this month, even if officials are denying it. In fact, some investors believe the cut will be as high as 50 basis points.

Furthermore, the tensions between the U.S. and Iran, and the U.S. and North Korea aren’t helping matters.

A historic meeting took place between President Donald Trump and Kim Jong-un, North Korea’s Leader, on June 30. President Trump is the first sitting U.S. president to ever step into North Korea.

Though the two agreed to resume nuclear talks “within weeks”, days after the meeting, North Korea backtracked and accused the United States of being “hell-bent on hostile acts.”

These tensions affected other currencies, such as the New Zealand dollar, which weakened slightly against the pound, to trade at NZ$1.8822.

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