The U.S. dollar picked up where it left off last week, losing against the majority of its G10 partners. Risk sentiment improved a touch late Friday after President Trump’s comments regarding China were not as aggressive as some traders expected.
The President did not announce new tariffs or indicate he would backtrack on the Phase 1 trade deal. However, developments regarding China, Hong Kong and the United States can provide headline risk to sentiment, and thus the greenback. European equities are clearly in the green and American futures are fluctuating between small losses and gains.
Widespread protests and violence dominated the weekend’s news cycle as tensions reached a head in the aftermath of the death of George Floyd. The unrest has yet to filter into markets, however.
May’s manufacturing PMI will cross the wire at 9:45 a.m. Economists expect a reading of 40, well below 50 which is the line between of expansion and contraction.
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The Euro continued its impressive rally against the U.S. dollar, rising for the fifth straight day. The common currency benefited from higher European equity prices that sapped demand for the safety of the dollar. The economic data showed manufacturing in the Euro-zone may be slightly rebounding. The bloc’s Purchasing Managers’ Index rose to 39.4 in May from 33.4 in April. This still represents a drastic contraction.
The European Central bank will release their monetary policy decision on Thursday. We expect the central bank to announce new stimulus, likely by boosting their bond program.
The British pound is also taking advantage of general dollar weakness and has risen for three straight day versus the U.S. Dollar. The pair is now at its highest level since May 11th. The move may only be temporary as Brexit will begin dominating headlines when trade talks begin again tomorrow. The two side have until the end of the month on whether or not to extend the Brexit transition period beyond 2020.