US Dollar trades near fresh May low after hawkish ECB rate cut

NEW YORK (June 6) The US Dollar (USD) edges lower on Thursday as markets see the the European Central Bank (ECB) issuing a policy rate cut by 25 basis points, though making it a hawkish one by not committing to any next moves.  The ECB has thus made its first rate cut after its hiking cycle started post-pandemic to tame inflation, with traders looking for clues on what this could mean for the US, the Federal Reserve (Fed) and the Greenback. Normally a rate cut would mean devaluation for the local currency, in this for the Euro, though a 'one-and-done' message could form a knee jerk reaction in the markets and be perceived as very hawkish. 

On the economic front, besides the ECB meeting, weekly US Jobless Claims are on the forefront ahead of the Nonfarm Payrolls number on Friday. Traders are having difficulties digesting data from the US that point to diverging conclusions after strong Services Purchasing Managers Index numbers (PMI) on Wednesday defied the downbeat Manufacturing data released on Monday. The Challenger Job Cuts report for May might shed some light on how labor demand is holding up. 

Daily digest market movers: Lagarde taking the stage

• The Challenger Job Cuts report for May, came in at 63,816 against 64,789 previous.
• At 12:15 GMT, the European Central Bank has made its 25 basis point cut, putting its monetary policy rate from 4% to 3.75%.
• While markets were still digesting the ECB rate decision, nearly all US data points for this Thursday were released:
  • Initial Jobless Claims jumped from 221,000 to 229,000. Continuing Claims ticked up as well from 1.790 million to 1.792 million. 
  • Goods Trade Balance posted a deficit of $99.4 billion in March and saw a marginal move in April to $99.2 billion. Goods and Services went from a deficit by $68.6 billion to $74.6 billion. 
  • Nonfarm Productivity in the first quarter grew by 0.2%, slower than the 0.3% seen in the previous quarter. 
• At 12:45 GMT, ECB President Christine Lagarde will comment on the rate decision. Fresh projections on growth and inflation will be released as well.
• Equities are in the green in Europe across the board, welcoming the 25 basis point rate cut. US futures are still looking for direction. 
• According to the CME Fedwatch Tool, Fed Fund futures pricing data suggests a 31.4% chance for keeping rates unchanged in September, against a 56.8% chance for a 25 basis points (bps) rate cut and a 11.3% chance for an even 50 bps rate cut. An interest rate hike is no longer considered an option. For the upcoming meeting on June 12, futures are fully pricing that rates will remain at current levels. 
• The benchmark 10-year US Treasury Note trades around 4.31%, near the fresh monthly low from Wednesday at 4.27%. 

FXStreet