USD: broader picture mixed as liquidity on rising Treasury issuance on watch.
Plenty of confusion for USD traders since it became quite clear that the US debt ceiling would be raised late last week. The brief USD sell-off from mid-last week reversed Friday and the USD firmed a bit more in places today. The data has generally provided a confusing backdrop. Friday’s strong May Nonfarm Payrolls change number of almost +300k plus a strong positive revision of the prior two months’ data was the only positive among many negatives. Among those were pronounced weakness in the household survey that is used to calculated the unemployment rate, which jumped a full 0.3% to reach 3.7% last month without any pick-up in the participation rate. Except for the explosion of the unemployment rate on the pandemic outbreak in early 2020, it would be the sharpest rise in the unemployment rate since 2010 if it holds without a revision. Also disappointing were the slightly weaker than expected average hourly earnings growth, importantly despite another 0.1 drop in the average weekly hours to 34.3. That level matches the range lows for weekly hours since 2011 (not including early 2020 spike). The downtrend in weekly hours suggests weakening labor utilization/rising spare capacity. Then yesterday’s May US ISM Services at 50.3 suggests that the dominant services sector of the US economy is at stall speed at best.
And yet, the incoming US data won’t be much of a focus this week, with the next test the CPI release next Tuesday. Meanwhile, a record pace of treasury issuance as the US Treasury is set to rebuild its reserves will be an important factor to monitor as it will pressure USD liquidity and possibly risk sentiment.
Table: FX Board of G10 and CNH trend evolution and strength.
USD strength remains, but needs refreshment to indicate the greenback remains in a bull trend. Elsewhere, the AUD and CAD are riding tall but the air could be getting thin for both without further boosts in commodity prices and perhaps risk sentiment. The CNH weakness remains quite pronounced and persistent.