A solid dollar to start June

The dollar ends the first week of June very much on the front foot. A much better-than-expected set of May nonfarm payrolls is seeing the DXY threatening to test 100 as we write late on Friday. That marks a breakout from recent ranges, with the index having spent several weeks trading in a narrow band between 99 and 99.5. It has also pushed USDJPY above 160, leaving traders on MoF intervention watch as markets start to wind down for the weekend. Crucially, it means that we end the week with a catalyst other than US-Iran peace talks top of mind, with negotiations still producing little meaningful progress, but plenty of contradictory headlines.

Looking ahead to the coming week, macro fundamentals are likely to remain a focus, with a raft of CPI reports due for publication alongside rate decisions from both the BoC and ECB. The former looks set to stay on hold, while the latter is almost certain to hike. In both cases, however, it will be the steer on future moves that should matter more than the immediate policy decision. Similarly, traders will be watching Norwegian CPI figures with one eye on the Norges Bank’s likely terminal rate. US inflation data, meanwhile, could well reinforce the signal from the May labour market report - that price growth, not the job market, should be the immediate concern for the Fed. If so, then we would expect to see another week of dollar gains.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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