Weak ADP Caps Dollar, NFP Decisive
The US dollar index (DXY) held around 101.40 on Wednesday (July 1), supported by continued expansion in US manufacturing activity and persistently high long-term Treasury yields. Although several economic data points are starting to show a slowdown, the dollar is still supported by expectations that the Federal Reserve will not ease policy quickly.
The US ISM Manufacturing PMI fell to 53.3 in June from 54.0 in May. This figure was lower than market expectations, but remained above the 50-point level, which indicates expansion. The New Orders component fell to 56.0, while the Prices Paid Index weakened to 73.0 from 82.1, indicating that input cost pressures are cooling, although they remain high.
In the labor market, ADP private payrolls increased by only 98,000 in June, lower than expected and slowing from the 122,000 increase in May. This weaker data limited the dollar's upside and made investors more cautious ahead of the official US Nonfarm Payrolls report.
Federal Reserve Chairman Kevin Warsh reiterated the Fed's commitment to its 2% inflation target. He said the central bank would not accept persistently above-target inflation, although he did not provide direct guidance regarding the interest rate decision at its July meeting.
In Europe, EUR/USD remained under pressure around the 1.1380 area. The euro was weighed down by weaker-than-expected eurozone inflation data. Annualized High-Cost Consumer Price Index (HICP) inflation fell to 2.8% in June from 3.2% in May, while core inflation weakened to 2.4% from 2.6%.
European Central Bank President Christine Lagarde said inflation and growth risks in the eurozone are now more balanced following falling energy prices. Meanwhile, ECB policymaker Alexander Demarco warned that the central bank should not rush to raise interest rates again, as lower energy prices could help stabilize inflation expectations.
GBP/USD moved around the 1.3280 area after the market digested comments from Bank of England Governor Andrew Bailey. Bailey said the Bank of England (BoE) still has time to assess the impact of rising energy prices on the UK economy, although he warned that UK inflation could still rise to around 3.2% this year.
USD/JPY is hovering near 162.50, remaining near the yen's lowest level in decades. Weaker ADP data has limited further dollar gains, but the yen remains pressured by the wide US-Japan interest rate differential. Investors also remain wary of potential warnings or intervention from Japanese authorities.
Meanwhile, AUD/USD weakened to around 0.6890 as the Australian dollar struggled against the still-strong greenback. The Aussie is also vulnerable ahead of the release of Australia's Trade Balance data, with investors waiting to see whether exports will continue to support the currency.
Overall, the foreign exchange market remains cautious ahead of US employment data. If Nonfarm Payrolls show the labor market remains strong, expectations of a Fed rate hike could rise again and support the dollar. However, if the data weakens, the DXY could potentially correct, providing room for recovery for the euro, pound, yen, and Australian dollar. (arl)
Source: Newsmaker.id
