Dollar Rally Pauses Amidst Debt Deal Progress, Fed Pause Hopes, Jobs Surprise

(RTTNews) - The week ended June 2 witnessed a pause in the Dollar's rally, amidst progress in the resolution of the debt ceiling deadlock and renewed hopes of a pause by the Fed in the next review. The mixed jobs data that came in at the end of the week however triggered fresh uncertainty over the Fed's likely action and provided reprieve to the Dollar. On a weekly basis, the U.S. Dollar weakened against the British pound, the Australian Dollar and the Japanese Yen but held ground against the euro.

The Dollar dithered during the week, but only after unprecedented debt default scare, disappointing manufacturing activity data from China, safe haven demand and heightened rate hike fears pushed it to a two-month high on Wednesday, May 31. The Dollar's retreat, helped by the weak manufacturing data and comments from Fed officials that hinted at a pause was however short-lived as the mixed jobs data released on Friday caused markets to reassess the outlook on Fed's monetary policy action. Though the fresh data revealed a massive jump in the jobs added, the simultaneous spike in the unemployment rate and the cooling in the hourly wages, triggered uncertainty over the likely moves by the Fed in the ensuing review due on June 14.

Data released by the U.S. Bureau of Labor Statistics showed the U.S. economy unexpectedly added 339 thousand jobs in May 2023 versus market expectations of 190 thousand. Figures for April were revised higher by 93 thousand to 294 thousand. The unemployment rate which was expected to rise to 3.5 percent from 3.4 percent earlier jumped to 3.7 percent. As expected, the average hourly wages cooled to 0.3 percent on a month-on-month basis versus 0.4 percent in April.

The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies reflected the Dollar's fortunes as it rallied to a peak of 104.70 on Wednesday, May 31 before plunging to the week's low of 103.38 on Friday, June 2. The Dollar Index shed 0.16 percent during the week, dropping to 104.04 by June 2, from the level of 104.21 on May 26.

The euro weakened 0.17 percent against the U.S. Dollar, dropping to $1.0706, from $1.0724 on May 26 amidst data that showed an easing in inflation. Data released on Thursday showed annual inflation in the Eurozone declining to 6.1 percent in May, from 7 percent earlier and lower than 6.3 percent that the markets had expected. The EUR/USD pair touched a high of 1.0780 and a low of 1.0634 during the week amid the ECB chief Christine Lagarde reiterating the case for further rate hikes to contain stubborn inflation.

Amidst the Dollar's weakness, the British pound strengthened 0.85 percent against the U.S. Dollar over the course of the week ended June 2. The GBP/USD pair ranged between the low of 1.2327 touched on May 30 and the high of 1.2545 touched on June 2. The pair closed the week's trading at 1.2448, versus the level of 1.2343 at which trading had closed in the previous week.

The Australian Dollar strengthened against the U.S. Dollar over the week amidst fears of another quarter point rate hike by the Reserve Bank of Australia in the next review. The AUD/USD pair closed the week at 0.6611, rising from the level of 0.6517 a week earlier. The pair ranged between the low of 0.6457 touched on Wednesday and the high of 0.6639 touched on Friday. The contradictory manufacturing PMI readings from China contributed to the volatility of the Australian Dollar.

The safe haven yen rebounded during the week ended June 2 amidst Bank of Japan Governor Kazuo Ueda reiterating the ultra-dovish monetary policy stance. The week witnessed the USD/ JPY pair touching a six-month high of 140.95 and subsequently falling to a low of 138.46. Over the course of the week, the USD/ JPY pair dropped 0.48 percent to 139.94, from 140.62 at the end of the previous week.

On the horizon are the interest rate reviews by the Reserve Bank of Australia on June 6, the Federal Reserve on June 14, the European Central Bank on June 15 and the Bank of England on June 22. Key economic data releases are also due in the intervening period. Amidst the expectations, the Dollar Index has edged down to 104.02, the EUR/ USD pair has increased to 1.0715, the GBP/USD pair has declined to 1.2414 and the AUD/USD pair has edged up to 0.6618. The USD/ JPY pair has declined to 139.36.