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US$ Rises as Non-Farm Payrolls Disappoint; Euro Unemployment Rises to Record

USD ­	The U.S. dollar continued its bullish sentiment overnight, pushing higher against the majority of its counterparts ahead of a heavy economic docket slated for release in the United States.  The greenback gained support after the euro-area unemployment surged to a record and as Chinese manufacturing grew less than forecast last month, boosting demand for the safe-haven currency.  The European Stoxx 600 fell over 1.0% and U.S. equities show American shares will open lower, adding to the general risk-off sentiment.  This morning’s economic data disappointed expectations sending stock futures even lower.  American employers in May added the smallest number of workers in a year and the unemployment rate unexpectedly increased, further evidence the labor market is struggling.  Payrolls climbed by 69K last month, less than the 150K estimated by economists.  April’s payrolls were also revised downward to 77K from 115K.  The jobless rate registered at 8.2% from 8.1%.  In addition, personal income rose only 0.2%, down from a 0.4% estimate.  Also personal spending, which accounts for 70.0% of the economy grew a meager 0.3%, in line with expectations.  Later this morning, the ISM manufacturing print is expected to register at 54.8. The U.S. dollar has seen muted reaction to the data in early trading but may find additional gains throughout our session as stock futures fall and the yield on the 10-year U.S. treasury has fallen to a record low below 1.5%.
EUR	The euro depreciated to fresh lows overnight after unemployment reached a record high of 11.0% in the euro zone. European stocks fell for a third consecutive day, with the Stoxx Europe 600 Index falling 1.5%, down a combined 6.8% in May as the debt crisis continues to pose serious challenges for EU growth. Chinese manufacturing growth fell this morning to the slowest pace this year, driving commodities even lower as the woes in Europe are having major global implications. In Greece, early opinion polls show conflicting reports of which party is leading, signaling a tight race is in store for the mid-June elections. Spanish Prime Minister Mariano Rajoy hinted that Spain’s debt sustainability might be in danger. Economy Minister Luis de Guindos reported Spain has a net of only 66B euros of capital left in March, which will prove troublesome because the ECB has refused Spain’s pleas for capital injections.
GBP	The British pound fell overnight; approaching 14-month lows versus the U.S. dollar. U.K. manufacturing shrank last month at the fastest pace since the middle of the financial crisis in 2009 as the bottom fell out of demand. The PMI figure came in at 45.9, lower than the 49.7 estimate, and below the contraction/expansion 50.0 line. The disappointing manufacturing print raises the probability of a Bank of England quantitative easing push next month, as disappearing domestic demand and euro zone risk exposure are weighing down the British economy.
JPY ­	The Japanese yen pushed modestly higher versus the greenback but reached an 11-year high versus the higher-yielding Euro as investors fled to the perceived safety of the yen.  Japan’s Finance Minster Jun Azumi pledged to take “decisive” action if excessive gains in the currency persist.  His comments may fuel speculation officials are preparing to intervene in the markets.  The last time the Japan intervened in the currency market to stem the currency’s gains was on November 4th.

 

U.S. Retraces Some Gains; Remains Near 2-Year Highs V. Euro

USD	The U.S. dollar fell from near a two-year high against the Euro and deprecated modestly across the board amid speculation the European Central Bank will announce measures to combat the debt crisis.  Several currencies rebounded against the dollar as they approached “over-sold” territory, as traders suspected their sell-off may have been too aggressive.  This morning’s economic docket showed that U.S. economy grew more slowly in the first quarter than previously estimated, reflecting government cutbacks.  GDP climbed 1.9% annual rate from January through March, down from a 2.2% prior estimate.  Personal consumption also slumped, gaining only 2.7% from a previous reading of 2.9%.  A separate report showed the number of Americans applying for unemployment insurance payments rose last week to a one-month high.  First time claims increased 10K to 383K.  Later this morning, the Chicago Purchasing Manager index is expected to rise to 56.8 in May from May 56.2.
EUR  ­	The euro broke its recent downward trend overnight, rising 0.3% versus the U.S. dollar after Spanish 10-year bond yields declined from 6-month highs early this morning. The optimism surrounding bond yields arose from speculation the ECB will announce measures to deal with the deepening debt crisis. However, today ECB President Mario Draghi reported the central bank cannot offset the fiscal irresponsibility in the euro zone with further actions. Ireland will vote on the European Fiscal Treaty today, with polls indicating they will support the measures constructed to ease the debt crisis in the euro zone. The odds show the treaty is 25 times more likely to pass than not, and thus a ‘yes’ vote will likely have little impact on the EUR/USD, while a ‘no’ could send shockwaves. The unemployment rate in Germany fell again in May, down to 6.7%. Retail sales across the euro zone were released today, with the extremes showing sales in Greece down 15.1%, and up 0.6% in Germany in April.
GBP  ­	The British pound rebounded from a four-month low versus the greenback overnight with the euro driving the price action on the heels of declining Spanish and Italian bond yields. The Nationwide Building Society reported house prices rose in May as the lack of homes for sale supported values. Prices gained 0.3% from April, after falling 0.3% the month prior. Tomorrow, PMI manufacturing is expected to slip below the contraction/growth line of 50.0, as forecasters see the figure coming in at 49.7 in May compared to 50.5 in April.

 

US$ Reaches 23-Month High Versus Euro as Spanish Bond Yields Rise

USD ­	The U.S. dollar continued its monthly rally across the board overnight, except against the Japanese yen, as signs the European debt crisis is spreading boosted demand for the assets deemed the safest.  Indeed, the Euro touched a 23-month low versus the greenback as Spanish bond yields rose and as euro-area confidence fell in April.  The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, reached its highest level since September 2010. This morning’s economic docket showed that mortgage applications in the U.S. fell last week as record-low interest rates failed to lure buyers.  Later, a separate report is expected to show that pending home sales slowed to 0.0% on a month over month basis in April, down from 4.1% in them month prior.  Today’s reports, paired with yesterday’s home price indexes, show that the housing market continues to struggle.
EUR	The euro slumped to a fresh 23-month low versus the U.S. dollar overnight, continuing its decline in May, now down 6.0%. Spanish bond yields are acting as the crisis de jour, as they inched closer to the 7% levels that prompted Troika bailouts in Greece, Ireland and Portugal. Ten-year bonds are now yielding over 6.7% in Spain. The Spanish government is trying to detoxify regional banks, which is proving to be a very difficult task while attempting to lift the economy out of recession. Spain hoped to receive assistance from the ECB to recapitalize their banks, however ECB officials quickly dismissed this thought. Economic confidence in the euro zone declined to the lowest in 2.5 years in May, as the risks of a bank run in Spain combined with the fear of a Greek exit from the euro zone weigh heavily on the economy. The European Commission reported consumer sentiment also fell to the lowest levels since October 2009.
GBP	The British pound fell overnight as speculation the sovereign debt crisis in the euro zone is spreading and is expected to dent the economic outlook in the U.K. The GBP/USD is now trading at a four-month low. U.K. mortgage approvals rose in April as property demand was boosted by record-low interest rates. Despite the increase in approvals, the 51k loans to buy homes last month still only account for half the monthly average prior to the financial crisis. Consumer confidence in Britain remained unchanged this month, and could see a trend lower in the coming months as the economy shrank in the first quarter. The U.K. economy continues to struggle as inflation and unemployment remain near 16-year highs.
Others	The greenback found added support versus the commodity-based currencies as higher-yielding assets and commodities, such as oil, fell.  Indeed, the South African rand dropped to a 6-month low.  In addition, the Australian dollar fell after a government report showed retail sales unexpectedly slid in April for the first time in 10 months.

 

US$ Pushes Slightly Higher; Nears Fresh 4-Month Highs Versus Euro

USD ­	The U.S. dollar trended slightly better against the majority of its counterparts overnight.  Indeed, the greenback remains within a percent of multi-month highs against a number of its rivals.  However, the dollar may struggle to gain more ground during our trading session as U.S. equity futures point to a higher open, boosting demand for higher-yielding assets.  There is no major economic data slated for release today in the United States.  Tomorrow sees the release of existing home sales, which is expected to show an expansion of 3.0% in April, after a 2.6% contraction in the month prior.  New Home sales are also expected to improve on Wednesday.  Weekly jobless claims and durable goods orders will hit the wire on Thursday morning, while consumer sentiment will round out the week on Friday.
EUR	The euro opens the week near the low of four months, as the common currency is experiencing downward pressure from the possibility of a Greek euro exit and associated contagion concerns in Italy and Spain. The G-8 meeting over the weekend had world leaders pressing Germany and France to keep Greece in the euro zone, and shift their focus towards boosting growth, despite Germany’s insistence that the fire will not be extinguished by tossing money at it. According to a May 10 Bloomberg Global Poll, over 50 percent of investors are now predicting a Greek exit from the euro zone before the end of this year. German and French leaders will meet this week to discuss a plan for the euro zone after the G-8 meeting revisited the austerity/growth disagreement between the two largest economies in Europe on how to emerge from the crisis.
GBP	The British pound traded in tight ranges over the weekend after nearly reaching a new two-month low last week. The sterling has lost 2.7% versus the U.S. dollar in three weeks, as quantitative easing talks are heating up in the U.K. Outspoken policymaker Adam Posen will leave the Bank of England in August to become the president of the Peterson Institute in Washington, leaving Chancellor of the Exchequer George Osborne searching for a replacement at a time when a single vote could sway monetary policy. Tomorrow, British inflation is expected to remain above the 2.0% target for the tenth consecutive month. U.K. consumer prices are scheduled to slow down to 3.1% on the year, down from the 3.5% print in March.
JPY	The Japanese yen slid across the board on speculation the Bank of Japan will add to stimulus measures this week to support growth and weaken the nation’s foreign-exchange rate.  BoJ officials begin a two-day meeting tomorrow.  The central bank expanded its asset-purchase program in February and April in an attempt to weaken the yen and boost the export-driven recovery.

 

US$ Stays Near Multi-Month Highs on European Debt Fears

USD	The U.S. dollar slid modestly overnight on a slight improvement to the overarching risk sentiment.  However, the greenback remains within striking distance of its multiple month highs against a number of rivals.  The Dollar Index, which Intercontinental Exchange Inc uses to track the greenback against the currencies of six major trading partners, was little changed.  The Index had risen the previous 14 days, the longest winning streak since its inception in 1973. There is no major economic activity scheduled for release today so expect the greenback to continue to trade with the prevailing risk bias and any further news surrounding the European debt crisis.
EUR	The euro briefly touched on a new four-month low overnight after German Finance Minister Wolfgang Schaeuble said he expects the debt crisis in the euro zone to last another two years. The U.S. will host a G-8 summit today, as European members (Germany, Italy, France, U.K.) will likely come under pressure to take additional actions to keep Greece in the euro zone and calm the volatile conditions in Europe. Yesterday, Greece was relegated to a CCC rating by Fitch, citing the failure to form a government as cause. In preparation for the G-8 summit, U.K. Prime Minister David Cameron said he would like to “persuade euro-zone countries to take really decisive action”.  Schaeuble remains adamant that he would prefer Greece to stay in the euro zone and follow through with the austerity measures.
GBP	The British pound recouped a fraction of this week’s losses overnight, after reaching a new one-month low yesterday. Bank of England policy maker Adam Posen admitted to prematurely ending his call for additional quantitative easing, as he, like many others was overly optimistic about the improving economic conditions in April. Posen took a shot at the European Central Bank as well, saying, “I became more optimistic than perhaps I should have been… in terms of the effectiveness of the ECB moves to cut off tail-risk in Europe”. The pound could see continued downward pressure as the call for additional QE heats up, and contagion concerns in Europe are beginning to reemerge.
JPY	The Japanese continued to gain against the majority of its counterparts and held onto yesterday’s steep gains versus the greenback.  Japan’s Finance Minister Jun Azumi said today he is watching currency moves with great interest and more caution.  Azumi reiterated Japan will take appropriate steps if needed in the foreign-exchange market.