US Dollar Falls Again, Focus Shifts to Non-Farm Payrolls

Last week, the dollar index maintained a volatile downward trend, with limited guidance from the Fed minutes, coupled with recent US data indicating increased pressure on the economy. Some Fed officials have pointed out that the pace of interest rate hikes should be cautious and not too hasty as they watch for recessions caused by the rapid pace of interest rate hikes. The remarks caused the market to cool expectations of another Fed rate hike in September. As a result, some funds flowed out of the dollar, eventually causing the dollar index to fall for two consecutive weeks.

Reserve Board officials

This week’s market focus will be on the US employment data as it will be the last non-farm payroll data to guide the Fed before the June rate hike. Considering the recent slowdown in demand for employment reflected in some critical US economic data, the non-farm payrolls report should indicate that employment growth sunk below 400,000. Such an occurrence will trigger more concerns in the market as investors become pretty worried about the economic outlook. As a result, the dollar has the opportunity to fall further to 100.50. Ahead of the US employment data release, investors should pay attention to the speeches by two key Fed officials on Wednesday night to guide the US dollar.

The ECB further demonstrated its hawkish stance, heralding an early end to the accommodative interest rate policy. President Christine Lagarde hinted that the ECB would raise its deposit rate by at least 50 basis points. It would remain at that level in July and September, pushing the previous quarter’s expectations higher to attract money into the Euro.

Eurostat will release the May CPI report this week, increasing the prospects of interest rate hikes. Investors should focus on whether the data support the Euro and watch for significant resistance at 1.0823.

The rise of the EUR/USD pair has led to a surge in other European currencies. For example, the Swiss franc recently rebounded from a two-and-a-half-year low. If the euro rally continues, the US dollar may test the support at 0.9420 against the Swiss franc.

The dollar fell as the pound rebounded, while the Bank of England launched measures to ease inflationary pressures and help stimulate the British economy. The expectation of rising interest rates boosted the pound. If the GBP/USD continues to rise, it will look at 1.28 or 1.30 as potential upside targets.

Higher oil prices support the Canadian dollar

The Bank of Canada will announce the results of its interest rate meeting on Wednesday. The market expects a 25 basis point hike and predicts the possibility of future rate hikes. Last week the dollar weakened, and international oil prices rose to a two-month high, supporting the Canadian dollar. Crude oil supply was discussed at the OPEC meeting on Thursday. It is estimated that maintaining its production increase agreement could help support international oil prices, which is expected to support the Canadian dollar’s rally. Technically, a break below the early May lows of the USDCAD pair would bring the 1.2 support level into focus, while a break below it could trigger a dip to the 1.25 level.

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