Global overview
The U.S. dollar held on solid ground ahead of America’s monthly jobs report. The euro steadied while sterling kept near two-week highs. The Canadian dollar slipped to four-week lows ahead of North American employment data. The greenback has been supported this week by fresh evidence of a resilient U.S. economy, news that sent Treasury yields higher with the 10-year closing above 4% Thursday for the first time since March. Private sector proved robust with a gain of 497,000 in June, the strongest monthly gain since February 2022. Services growth also surprised to the upside while the latest weekly jobless claims printed below 250,000, a historically low level. Bullish data makes for a near certainty that the Fed will raise interest rates later this month. Should America’s June jobs report accentuate economic resilience it could weigh on risk appetite and bolster the dollar on the view that the Fed may need to raise rates at back-to-back meetings.
Euro on track for weekly decline
The euro was little changed on the day and for the week ahead of America’s monthly jobs report. The euro has drifted lower of late as fresh signs of European economic weakness helped to neutralize the ECB’s hawkish policy stance. Data today showed that German industrial output unexpectedly fell 0.2% in May, down from a gain of 0.3% in April. The data kept the bloc’s largest economy at risk of a third straight quarterly contraction in the April to June period.
Sterling jumps to 2-week highs
Ahead of influential U.S. jobs data, sterling was on track for a weekly gain against the greenback, boosted by Britain’s higher rate outlook. The pound has largely navigated more risk-averse waters this week thanks to expectations that the Bank of England may need to raise borrowing rates, currently at 15-year highs of 5%, above 6% to finally strangle UK inflation that at 8.7% ranks tops among G7 economies. Sterling will be tested next week by top-tier UK data on unemployment, monthly growth, and factory output.
Canadian hiring beats, U.S. misses
Blockbuster hiring in Canada rescued the loonie from four-week lows as it strengthened the case for Ottawa next week to raise interest rates. Canada added a robust 59,900 jobs in June, about three times stronger than forecasts of an increase of 20,000. Unemployment rose to 5.4% from 5.2%. On balance, the data depicts a tight labor market and signals a green light for the Bank of Canada to raise rates to 5% from 4.75% on July 12. Meanwhile, slower U.S. hiring weighed on the dollar as it helped to allay fears of the Fed raising rates more aggressively over coming months. Nonfarm payrolls increased by 209,000 in June, below forecast of 225,000. Job growth in April and May was downgraded by a combined 110,000 jobs. Unemployment ticked down to 3.6% from 3.7% while wages steadied at an annual rate of 4.4%. Slower but still solid hiring, coupled with lower unemployment and wage growth remaining elevated, is still a recipe for continued Fed rate hikes and a firm greenback.
Dollar maintains ranges thanks to resilient U.S. economy
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: July 3-7
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