During the first hours of the European session on Monday, the dollar lost value in anticipation of the employment report, while the euro rebounded after the first round of the French elections.
Dollar loses ground ahead of payrolls release
The dollar index has been affected mainly by the euro’s strength on Monday, as the single currency has a higher weight in the basket, and it was already on the back foot after Friday’s release of softer-than-expected inflation.
The Fed’s favorite inflation measure, the personal consumption expenditures (PCE) index, indicated cooling inflation on Friday, raising estimates that the Fed will begin cutting interest rates near the end of 2024.
The focus of this holiday-shortened week in the U.S., with Independence Day on Thursday, is primarily on Friday’s nonfarm payrolls report, as traders look for signs of when the U.S. central bank may start cutting interest rates.
Economists estimate that the U.S. economy added 189,000 jobs in June, following a larger-than-estimated increase of 272,000 last month.
Regarding nonfarm payrolls data, a report on Tuesday is expected to signal that job openings declined again in May. Minutes of the Fed’s June meeting will be released on Wednesday. Additionally, Fed Chairman Jerome Powell will make an appearance at the European Central Bank’s annual forum in Portugal.
Euro moves after the first round of the French elections
EUR/USD rose 0.5% to 1.0765, around two-week highs, after the victory won by France’s far-right in parliamentary elections fell slightly short of some expectations.
Marine Le Pen’s far-right National Rally party won the first round of France’s parliamentary elections on Sunday, taking 33% of the national popular vote.
The leftist New Popular Union came second with 28%, while President Emmanuel Macron’s centrist bloc managed 20%.
The victory of the National Rally was tighter than expected, leaving the final result conditional on the pacts between the parties between now and the second round to be held this weekend.
This political news has overshadowed data indicating that manufacturing activity across the eurozone experienced a turn for the worse last month, as demand slowed at a much faster pace even as factories cut prices.
GBP/USD rose 0.3% to 1.2673, with sterling higher even though data showed growth in UK manufacturing activity slowed in June from the previous month.
The S&P Global Purchasing Managers’ Index for the British manufacturing sector fell to 50.9 in June from 51.2 in May, and the final reading was down from 51.4 in preliminary data.
A general election is scheduled for Thursday in the UK, in which the Labour opposition is expected to win the keys to Downing Street.
Yen remains weak
USD/JPY rose 0.1% in Asia to 161.02, nearing a 38-year high.
The Japanese government on Monday made a surprise revision to its first-quarter gross domestic product data, which now reflects a much sharper contraction than originally expected.
The reading presented a pessimistic outlook for the Japanese economy, and also raised doubts about how much room the Bank of Japan has to start tightening monetary policy.
USD/CNY rose slightly to 7.2683, close to levels last seen in November.
Purchasing managers’ index data indicated a mixed picture for the economy. Government PMI data showed on Sunday that China’s manufacturing sector contracted for the second month in a row in June, but private PMI data indicated that the sector grew at its fastest pace in three years, exceeding estimates.
