By Gertrude Chaves-Dreyfus and Stefano Rebaudo
NEW YORK/MILAN (Reuters) – The U.S. dollar rose on Wednesday after data showed the world’s largest economy’s services sector recovered in May from a contraction the previous month, highlighting uncertainty about the Federal Reserve’s expected launch of an easing cycle later this year.
The Institute for Supply Management said its non-manufacturing purchasing managers’ index rose to 53.8 last month from 49.4 in April. The May reading was the highest since August and beat the forecast of all 59 economists in a Reuters poll, which had a median forecast of 50.8.
“April’s numbers don’t suggest the economy is in freefall,” said Mark Chandler, chief market strategist at Bannockburn Forex in New York. “The April numbers are exaggerating the weakness of the economy.”
The dollar index rose 0.3% to 104.41 in morning trading, after hitting 103.99 on Tuesday, its lowest since April 9.
The euro, the largest component of the dollar index, fell after the ISM data was released, trading 0.1% lower at $1.0865.
Investors are now focused on Thursday’s meeting of the ECB, where the central bank is widely expected to cut deposit rates from a record high of 4%.
The Bank of Canada (BOC) earlier cut interest rates by 25 basis points to 4.75%, the first rate cut in four years, and said further easing was possible if inflation continues to ease.
The U.S. dollar rose 0.4% to C$1.3729.
Analysts expect the Bank of England to mimic the moves of the ECB and the BOC when the central bank meets to decide on interest rates in two weeks’ time.
Meanwhile, the Swiss National Bank has already started easing monetary policy in March and may do so again this month, as Swiss inflation remained stable in May.
U.S. private payrolls grow slower than expected
Data released in early trading showed U.S. private payrolls grew less than expected in May and the previous month’s data was revised down, according to a report released on Wednesday.
The ADP employment report showed private payrolls rose by 152,000 last month, after a downwardly revised April increase of 188,000. Economists surveyed by Reuters had expected private payrolls to rise by 175,000 last month.
The dollar had little reaction to the ADP report.
As well as the ECB’s policy meeting, investors will also be focusing on Friday’s non-farm payrolls report, with markets expecting 185,000 new jobs to be created last month, according to a Reuters poll.
“The employment data should still suggest the labour market is fairly strong,” said Bannockburn’s Chandler. “Despite the JOLTS data, we don’t see this crossing the threshold for a significant labour market slowdown and so it shouldn’t have any impact on interest rate forecasts.”
The dollar rose 0.9 percent against the yen to 156.33 yen, its weaker than Tuesday, when the yen rose as investors unwound emerging market bets.
Japan’s real wages fell for the 25th consecutive month in April as inflation outpaced nominal wage increases.
Bank of Japan Deputy Governor Ryozo Himino said on Tuesday the central bank “needs to be very vigilant” about the impact of a weak currency on the economy and inflation.
Investors expect the Bank of Japan to tighten monetary policy in the future, but not enough to push the yen higher.
Emerging markets stabilised after several days of turmoil.
The Mexican peso strengthened against the US dollar, falling 1.5% to 17,580 pesos against the greenback. The ruling left-wing Morena party was re-elected, putting it within reach of a two-thirds majority in both houses of Congress if it could form a coalition government.
Some analysts said expectations of greater government control over the economy were weighing on the Mexican currency.
The Indian rupee recovered from a seven-week low against the dollar after Indian election results showed voters returning Narendra Modi to power by a much narrower margin than expected. The dollar weakened 0.2% against the rupee to 83.372.
currency
bid
the price is
June 5th
02:40
PM GMT
Description RIC Previous US Percentage Year to Date Percentage High Low
End Change Bid Bid
previous
session
Dollar 104.26 104.15 0.12% 2.85% 104.45 104.
Index 12
EUR/USD 1.088 1.0879 0.01% -1.43% $1.0892 $1.0
86
USD/JPY 156.18 154.85 0.86% 10.73% 156.465 154.
8th place
EUR/JPY 1.088 168.48 0.86% 9.18% 170.01 168.
41
USD/CHF 0.8932 0.8902 0.34% 6.13% 0.8945 0.88
1998
GBP/ 1.2782 1.277 0.09% 0.44% $1.2798 $1.0
$86
USD/CAD 1.3705 1.3677 0.22% 3.41% 1.3741 1.36
Nadian 66
Aussie/Dominican 0.6644 0.665 -0.08% -2.54% $0.6664 $0.6
628 Rural
EUR/CHF 0.9716 0.9685 0.32% 4.63% 0.972 0.96
8 seconds
EUR/STAR 0.8509 0.852 -0.13% -1.82% 0.8523 0.85
Ring 04
NZ 0.6187 0.6177 0.19% -2.07% $0.6198 0.61
Dollar/Do 71
Lar
Dollar/No 10.5692 10.5676 0.02% 4.28% 10.5917 10.5
National Route 31
EUR/NOK 11.4993 11.5 -0.01% 2.45% 11.509 11.4
549
USD/CHF 10.3967 10.4297 -0.32% 3.28% 10.4491 10.3
Eden 738
EUR/SWE 11.3145 11.3477 -0.3% 1.7% 11.3634 11.2
967 yen
(Reporting by Gertrude Chavez-Dreyfuss in New York and Stefano Rebaudo in Milan; Additional reporting by Tom Westbrook in Singapore; Editing by Bernadette Baum, Mark Potter and Deepa Babington)
