The U.S. dollar rally continues to gather steam as it appreciated against major pairs for a third week. The U.S. nonfarm payrolls (NFP) provided little support with a miss in both the headline job number and the much-anticipated wage growth component. The main takeaway from the jobs report was the drop in the employment rate from 4.1% last month to 3.9%.
As reported earlier, it has been a good day for European stocks, most notably the German DAX Index. However, shares on Wall Street have not been so buoyant despite a very good earnings season so far. Sentiment has been boosted after U.S. President Donald Trump decided to extend the deadline on deciding whether to impose tariffs on European Union exports of steel and aluminum and this helped to reduce the threat of a trade war for now. On top of this, the sharp rally in the U.S. dollar has weighed heavily on the Euro/U.S. dollar (EUR/USD) currency pair.
There were no obvious triggers behind Tuesday’s bullish reversal; although news that U.S. President Donald Trump had extended the deadline on deciding whether to impose steel and aluminum tariffs on U.S. allies, including the European Union, Mexico and Canada, helped to reduce the threat of a trade war.
While we were focused on developments on the East side of the Atlantic last week (including the ECB meeting), the market’s focus is shifting westwards this week, with the May Federal Reserve meeting set to conclude tomorrow and the always-impactful Non-Farm Payrolls report on Friday.
The euro/U.S. dollar (EUR/USD) currency pair’s sell-off accelerated last week, although it remains to be seen if it will go any further lower or stage a comeback this week. Last week’s sell-off was mainly due to the rebounding US dollar than weakness in the euro. However, the latter also weakened slightly because of a slightly dovish ECB than expected.
On Friday, the Dollar Index traded to the highest level since Jan. 11 and came within five ticks of its 200-day moving average. This is significant because Jan. 11 was when the European Central Bank Minutes showed the bank their plan to change its policy message early this year to tighten sooner than later; this set a bullish tone for the euro and a bearish tone for the dollar.