The U.S. Dollar is trading mixed this morning showing weakness against the Japanese Yen, Swiss Franc and Euro as Forex traders absorbed employment data showing the U.S. economy added far fewer jobs in May than economists had forecast.
The U.S. economy added close to 2/3 less jobs in May than expected. The hard numbers showed a gain of 54,000 jobs in May, well below the 125,000 expected by the experts surveyed by numerous news services.
This morning’s bearish labor news added to the pessimism that the U.S. economic recovery is weakening, triggering a sharp break in the equity markets and sending Forex traders into the safety of lower-yielding assets such as the U.S. Dollar, Japanese Yen and Swiss Franc. It looks as if today will be a day where the Greenback shows excessive demand as traders pressure risky asset classes and commodity based currencies.
Today’s weakness in the equity markets and strength in the Greenback is similar to the reaction the markets saw earlier in the week after the release of the weaker than expected ADP private employment report. Early reactions indicate that the downside pressure will be on the commodity-based Australian, New Zealand and Canadian Dollars. Upside support is likely to show-up in the safe-haven U.S. Dollar, Swiss Franc and Japanese Yen.
While some traders seek the safety of the lower yielding currencies, the Euro is getting a boost from talk that officials are getting closer to a resolution to the Greek sovereign debt crisis. In addition, an improving Euro Zone economy is likely to keep the European Central Bank on the path of rising rates as the news continues to support a favorable interest rate differential.
Dovish investors in the U.K. are pressuring the British Pound this morning after weaker than expected economic data is likely to keep the Bank of England from hiking interest rates at next week’s meeting. Hawkish traders had been increasing bets that the central bank would begin hiking rates, but this morning’s weak services report suggests it will likely refrain from a rate increase.
Today could blossom into a volatile day for all Forex markets as money is likely to be allocated amongst the major based on economic strength and flight-to-safety. The Euro is expected to see economic strength-based buying while commodity-based currencies are expected to suffer. Safe-haven inflows are likely to help support the U.S. Dollar, Japanese Yen and Swiss Franc.
