The U.S. dollar inched higher versus many of its rivals on Friday, the first trading day of June, after a better-than-expected jobs report outweighed renewed fears over trade wars.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.16% was up 0.2% at 94.156. On the week, the index is unchanged so far, in slightly negative territory.
The broader WSJ Dollar Index BUXX, +0.15% that measures the U.S. currency against a broader basket of rivals was up 0.2% at 87.23.
The euro EURUSD, -0.1368% slipped to $1.1675 versus $1.1694 late Thursday in New York.
The British pound GBPUSD, +0.4663% held a small gain at $1.3326, up from $1.3295 late Thursday.
The greenback strengthened versus the Japanese yen USDJPY, +0.62% last buying ¥109.66, up from ¥108.80.
Back in North America, the dollar gained a small advantage against the Canadian dollar USDCAD, -0.0540% fetching C$1.2962, compared with C$1.2959 late Thursday. At the same time the buck slipped versus the Mexican peso USDMXN, -0.1879% last buying 19.8309, down from 19.9089.
What is driving the market?
The dollar reclaimed some lost territory on Friday and inched higher, even as retaliatory action is expected from U.S. trade partners over the steel and aluminum tariffs that come into effect on Friday.
Read: Here’s what steel and aluminum tariffs on U.S. allies mean for the metals market
But a better-than-expected May jobs report supported the buck, leading market participants to expect a second interest rate raise of the year at the Federal Reserve monetary policy meeting in two weeks. Fed funds futures indicated a 91% likelihood for a 25 basis point hike for June 13 on Friday, up from 88% on Thursday.
Nonfarm payrolls came in at beat estimates at 223,000, and the unemployment rate edged down to 3.8% from 3.9% before. Average hourly earnings rose 0.3%, more than expected.
Yet, Minneapolis Fed President Neel Kashkari said there was still some slack left in the labor market.
Meanwhile in Europe, Spain’s Prime Minister Mariano Mariano Rajoy has been forced out of office by way of a no-confidence vote. Opposition leader Pedro Sánchez will take over from Rajoy. While a Spanish political crisis is seen as less existential to the future of the European Union than Italy’s turmoil that seems to have found a conclusion in the 5 Star Movement and the League deciding to form another coalition on Thursday.
Read: Spain, Italy lead European stocks higher as they get ready for new governments
What are strategists saying?
“The numbers in the jobs report were solid across the board,” said Minh Trang, senior FX trader at Silicon Valley Bank. “It’s a bit of a Goldilocks scenario for the Fed because it affirms that it has been moving at the right speed. This paves the way for another rate hike at the Fed meeting in two weeks.”
“Today’s jobs report is supportive of a rising dollar,” said Eric Freedman, chief investment officer at U.S. Bank Wealth Management. “The dollar seems to be at an inflection point, positioned to trend upward after trending downward on both a trade-weighted basis and relative to the often quoted ICE Dollar Index since late 2016 until very recent dollar strength.”
“Trade tensions and tariff talk will dominate the airwaves but not have an immediate impact to U.S. economic data or Federal Reserve policy although they will impact our trading partners like Mexico and Canada,” said Brad Bechtel, managing director in FX at Jefferies.
“The next catalyst [for the euro] is likely to be the ECB in a couple of weeks when we will get more detail as to their response to the rise of tensions on the political front. The inflation data this week was firm and the manufacturing data stable enough where if Italy were not on the cards the ECB might feel quite confident about its outlook,” said Bechtel.
Read: Higher oil prices could give ECB grounds to turn hawkish, says HSBC economist
What else is in focus?
The Markit manufacturing PMI for May came in at 56.4, compared with 56.5 previously.
The Institute for Supply Management’s manufacturing index for the same month rose to 58.7, but came in below the MarketWatch consensus estimates of 58.9.
Construction spending grew 1.8% in April, more than the 1% forecast.