June 3 2016

June 2, 2016 (Tempus, Inc.) – Currency markets were mostly quiet overnight as traders awaited two sizeable risk events early today, the European Central Bank’s interest rate decision and ADP’s private U.S. jobs data.  However, both failed to shock investors causing the greenback to continue to hold recent ranges.

Companies added 173k workers to payrolls in May following a revised rise of 166K in April.  The print is right in line with traders’ estimates of a 173K gain.  However the revised April number is higher than the initial reading of 156K.  Market participants will now shift their focus to tomorrow’s Non-Farm payrolls print.  A better than expected print (160K jobs added) would likely increase odds that the Fed will raise rates by 25 basis points later this summer and cause the dollar to rally.   
The Euro is unchanged from yesterday’s close after the European Central Bank refrained from adding additional stimulus at their meeting this morning.  None of the economist polled by Bloomberg expected the central bank to change interest rates or current quantitative easing levels, allowing the EUR/USD to float in a tight range. 
Later, ECB President Mario Draghi will hold a press conference in Vienna and is expected to field questions on the central bank’s latest economic and price growth forecasts.  Consumer prices in the Euro-zone have failed to tick higher for four consecutive months causing doubt that stimulus added last year is having the desired effect.  If Draghi indicates that the ECB may be prepared to increase the bank’s monetary base in the coming months, the Euro would come under renewed pressure. This is especially true against the back drop of an increasingly hawkish Fed in the States. Conversely, however, if Draghi touts an improved outlook for growth in the region, the Euro could claw back some of its 3.0% losses from May.

The British pound has become a tough currency to gauge as the currency’s fortunes are being held hostage by the pending referendum on whether the U.K. will remain a member of the European Union.  The Sterling is slightly stronger today after two days of declines.  Recent polls have shown that the “”Leave” campaign has the momentum and may be pulling ahead of the “Remain” side.  It is widely thought that if the U.K. votes to leave Europe, the British pound can fall as much as 10% from its current levels against the U.S. dollar.  While we believe common sense will prevail and the U.K. will remain a member of Europe, the uncertainty will continue to wreak havoc on the Sterling for the remainder of the month.