The resilient dollar

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We’re back to the monthly US jobs numbers which could well serve to set the dollar tone for the month ahead. Up to the GDP data, the run of data in the US has been improving vs. underlying expectations. What was noticeable about that number was the resilience of the data to the near stalling of the US economy in the first quarter.

The sense is that we’ve moved on from the story of the weather related weakness seen in Q1 and the dollar is proving less sensitive to weaker data. That said, this may not hold true for the payrolls report, which is for April. The expectation is for a 218k increase, with the rate falling to 6.6%.

The 200k level on headline payrolls is notionally seen as the level above which the Fed wants to see jobs being added on a consistent basis. We are currently running at 188k on the 6 month average. A number stronger than the expectation would be dollar positive and set up the greenback for a more solid performance for the month ahead.

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Elsewhere, the overnight session has been characterised by tight ranges on the majors, with the yen the only notable mover, weakening modestly towards 102.50 on USDJPY, but holding within the ranges of the week.

The ECB announces the repayment of 3 year loans today, which is of interest because the level of liquidity has been falling recently and pushing up overnight rates, which has served to offer underlying support to the single currency at a time when easing expectations have been growing on deflationary risks.

Note that overnight rates are still trading above the ECB’s key rate (0.40% and 0.25% respectively). Also of interest will be final PMI data for the Eurozone and construction PMI in the UK. Update: construction PMI fell short of expectations.

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