June 4 2016

June 3, 2016 (Tempus Inc.) – While currency markets traded in jerky ranges overnight, the greenback opened this morning mostly unchanged against the majority of its counterparts.  The range-bound volatility could be attributed to traders positioning themselves ahead of the week’s largest risk event, this morning’s Non-farm payroll number.

The U.S. dollar has lost about 1.0% across the board in early trading following a terrible jobs print.  The U.S. economy added a paltry 38K jobs in May, failing to meet expectations of a 160K gain.  The reading marks the smallest job growth in a one month time in nearly 6 years.  April’s reading was also downwardly revised to 123K from 160K.  The unemployment rate, however, fell to 4.7%, the lowest since 2008 but can be attributed to a falling participation rate.
The dismal data will surely decrease odds that the Federal Reserve will find the scope to raise interest rate later this month.  The dollar had gained throughout May as Fed members held a more hawkish tone.  However, the central bank maintained they would be data-dependent and today’s print will pour cold water on their recent tone.  The probability of a June rate hike last Friday stood at 30.0% but following today’s data, chances are now less than 10.0%.
The British pound was also flat overnight, but is set for its weakest week since March on “Brexit” worries.  With the risk of sounding like a broken record, the fate British pound continues to be in voter’s hands on June 23rd where U.K. citizens will decide whether the country will remain in the European Union.  The pound has been the second worst performer (after the Mexican peso) among 16 major currencies this year, as a “Leave” vote would likely decimate Europe’s second largest economy.

In a quiet overnight market, the New Zealand dollar was the standout by gaining over a half percent against the U.S. dollar.  The Kiwi is set to climb 2.0% against its American counterpart this week as traders have scaled back bets the central bank will cut rates at their next meeting.  Indeed, swap traders are now pricing in a 32% change of a cut at the June 9th meeting.  A month ago, chances were set at 80.0%.