Dollar Drops to Post-Election Low as Rate Hike Odds Recalibrated

Ivan Schwartz
June 3, 2017

Traders now see a roughly 87 percent chance of a Fed rate increase on June 14, down slightly from 89 percent before the jobs report. The three-year was up 1/32 in price, and its yield fell to 1.427 percent from 1.446 percent.

With risk appetite back in the markets, safe haven assets like the yen and gold suffered. That consensus was hardened by data from ADP, a payroll processing company, which indicated in its National Employment Report that 253,000 new jobs were created last month, well ahead of the market's 185,000 forecast, thanks to a 174,000 surge in private-sector hiring. In commodities, oil prices stabilized near three-week lows following a bigger-than-expected drop in US crude inventories. WTI slipped to $47.48 a barrel while Brent crude dropped to $49.73 a barrel. The stock draw offered some respite from worries over a global oversupply in oil.

The dollar also slid to seven-month troughs versus the Swiss franc, trading last at 0.9664 franc, down 0.5 percent. The currency traded in the range of C$1.3469 to C$1.3516. It hit session high at 110.83 and made session lows at 110.31 levels. The Australian dollar declined sharply against U.S. dollar on Thursday as Australian dollar was dragged down following slump in China's manufacturing data and stronger dollar across the board. A break of $0.7370 would test a trough of $0.7329 touched last month. A private survey of China's manufacturing activity contracted in May for the first time in almost a year.

"While the claims report put a damper on what has been a pretty upbeat run for most of the recent labor market data, we still have a fairly favorable view of labor market conditions", said Daniel Silver, an economist at JPMorgan in NY.

European shares inched up on Thursday, with blue chips in Milan taking the lead after better than expected Italian economic growth helped markets shrug off political worries.

However, three key components inside the employment report are worth focusing on in order to gauge how policymakers at the U.S. Federal Reserve are likely to react to tightening labor market conditions as they prepare for their next interest rate setting meeting later this month.

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S&P 500 e-minis were up 7.25 points, or 0.3 percent, with 147,944 contracts traded.

UK's benchmark FTSE 100 closed up by 0.1 percent, the pan-European FTSEurofirst 300 ended the day up by 0.17 percent, Germany's Dax ended up by 1.24 percent, France's CAC finished the day up by 0.34 percent.

USA stock index futures were higher on Friday as a clutch of economic data showed the economy continues to strengthen, ahead of the monthly employment data for May.

Benchmark 10-year Treasuries were last down 6/32 in price, with the yield rising to 2.218 percent from 2.198 percent late on Wednesday. The Canadian dollar strengthened against its broadly weaker USA counterpart on Friday, recovering from an earlier two-week low as data showing a rise in Canada's exports offset the impact of slumping oil prices.

The greenback declined as much as 0.5 percent after the data, reaching its lowest since November 4 and relinquishing gains of 0.1 percent built ahead of the jobs report.

Oil prices stabilized near three-week lows following a bigger-than-expected drop in USA crude inventories. US gold futures ended the session up 0.8 percent at $1,280.20 an ounce.

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