By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar rose on Wednesday after data showed the services sector in the world’s largest economy rebounded in May after contracting the month before, highlighting uncertainty around the expected start of the Federal Reserve’s easing cycle later this year.
The Institute for Supply Management said its purchasing managers’ index for non-manufacturing companies rose to 53.8 last month from 49.4 in April. May’s reading, the highest since August, surpassed estimates of 50.8.
In afternoon trading, the price rose 0.1% to 104.28 (), after reaching 103.99 earlier on Tuesday, the lowest level since April 9.
Even with the strong ISM services data, Vassili Serebriakov, FX strategist at UBS in New York, said he believes the U.S. economy is slowing, although “it’s not clear that you should sell the dollar right away.”
He said the market is pricing in about two Fed rate cuts this year, not leaving much room to price in more easing than investors have already factored in.
“In that context, we are still not convinced that the dollar has many disadvantages,” Serebriakov said.
The euro, the largest component of the dollar index, fell after the ISM data, trading slightly lower at $1.0874.
Investors are now looking ahead to Thursday’s meeting of the European Central Bank, where the bank is widely expected to cut deposit rates from a record high of 4%.
Earlier in the session, the Bank of Canada (BOC) cut rates by 25 basis points (bps) to 4.75%, the first cut in four years. The bank said further easing is likely if inflation continues to moderate.
The US dollar rose against the Canadian currency following the BOC’s change and was last up 0.1% at C$1.3688.
Analysts expect the Bank of England to follow the steps of the ECB and the BOC when the British central bank meets in two weeks to decide on interest rates.
The Swiss National Bank, meanwhile, already started easing in March and could cut rates again this month after Swiss inflation remained stable in May.
US private payrolls rise less than expected
Earlier on Wednesday, data showed US private payrolls rose less than expected in May, while data for the previous month was revised downward.
Private payrolls rose by 152,000 jobs last month after rising by a downwardly revised 188,000 in April, ADP’s employment report showed. Economists polled by Reuters had forecast private employment to rise by 175,000 last month.
The dollar reacted little to the ADP report.
In addition to the ECB, investors are also eyeing Friday’s non-farm payrolls report, with the market expecting 185,000 new jobs, according to a Reuters poll last month.
“The weak JOLTS (Job Openings and Labor Turnover Survey) data does not cross the threshold of a significant labor market slowdown, which will not impact interest rate expectations,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York. .
Fed Funds Futures increased the odds of a September rate cut to 70% on Wednesday, according to LSEG’s rate probability app, up from 59% late Tuesday. Earlier last week this was just under 50%.
The interest rate futures market is also pricing in one to two cuts this year.
In other currency pairs, the dollar rose 0.8% against the yen to 156.09 yen. The Japanese currency followed Tuesday’s gains, driven by investors trimming bets on emerging markets after Japanese real wages fell for a 25th straight month in April as inflation outpaced nominal wage increases.
On Tuesday, Bank of Japan deputy governor Ryozo Himino said the central bank must be “vigilant” about the impact of yen weakness on the economy and inflation. Investors see the BOJ tightening policy going forward, but not enough to strengthen the yen.
Emerging markets stabilized after a few turbulent days.
The Mexican peso gained against the dollar, which fell 1.6% to 17.567 pesos. The ruling left-wing Morena party was re-elected and in coalition was within reach of a two-thirds majority in both chambers of Congress.
The Indian rupee recovered from a seven-week low against the dollar. Election results in India showed that voters had returned Narendra Modi to power by a much smaller margin than expected. The dollar last fell 0.2% against the rupee at 83.370.
Currency
bid
prices at
June 5
7:45 am
pm GMT
Description RIC Last US Pct YTD Pct High Low
at Close Change bid
Last
Session
Dollar 104.25 104.15 0.11% 2.84% 104.46 104.
index 12
Euro/pop 1.0875 1.0879 -0.04% -1.48% $1.0892 $1.0
ar 855
Dollar/Year 156.09 154.85 0.81% 10.67% 156.465 154.
8
Euro/yen 1.0875 168.48 0.75% 9.07% 170.01 168.
41
Dollar/SW 0.8933 0.8902 0.35% 6.14% 0.8949 0.88
iss 98
Sterling/ 1.279 1.277 0.18% 0.53% $1.2798 $1.0
Dollars 855
Dollar/Approx 1.3687 1.3677 0.08% 3.26% 1.3741 1.36
nadian 66
Australia/Thurs 0.665 0.665 0% -2.46% $0.6664 $0.6
lar 627
Euro/Swiss 0.9712 0.9685 0.28% 4.59% 0.9722 0.96
s 8
Euro/Star 0.85 0.852 -0.23% -1.95% 0.8523 0.85
ling
New Zealand 0.6192 0.6177 0.28% -1.98% $0.6198 0.61
Dollar/Do 71
llar
Dollar/no 10.5753 10.5676 0.07% 4.34% 10.6033 10.5
road 31
Euro/Norwegian 11.5011 11.5 0.01% 2.47% 11.518 11.4
yes 549
Dollar/ZW 10.3923 10.4297 -0.36% 3.23% 10.4491 10.3
Eden 738
Euro/Sweden 11.3024 11.3477 -0.4% 1.59% 11.3634 11.2
en 967
