Dollar Unchanged on Week as Pound Drops After Election Surprise

  • Sterling nursing losses vs all G-10 as May’s gambit backfires
  • Dollar-yen climbs above 110.80, CAD gains after robust jobs

The dollar was set to end the week little changed as politics dominated in the short term before the Federal Open Market Committee’s meeting next week.

The pound was lower versus all of its G-10 peers and dropped as much as 2.5 percent against the dollar after poll results left Prime Minister Theresa May with a hung Parliament and needing the support of the 10-seat Democratic Unionist Party of Northern Ireland. The election result was seen as potentially weakening May’s position just 10 days before the U.K. was set to commence Brexit negotiations with the European Union.

  • On Sunday, the first round of French parliamentary voting is expected to favor President Macron’s Republic on the Move and partner MoDem, with recent polls suggesting they’ll garner ~30% of the vote in the first round for an eventual showing of ~400 seats out of 577 up for grabs. Follow the results on Sunday at EU <GO>
  • Amid light trading flows outside of sterling, the dollar gained vs nine of its G-10 peers while ceding ground to the Canadian dollar, which rose following a stronger-than-expected May employment report. The greenback rose as much as 0.5% Friday to its highest level in a week before paring gains. It has rebounded off a post-U.S. election low seen Tuesday with gains in each of the last three days
  • With the U.K. vote now in the background, attention is shifting to the French election and then to next week’s Fed meeting where officials are expected to raise rates by a quarter point
  • USD/JPY rose as much as 0.7% to 110.81 during the session, extending a steady climb that began Thursday, before paring the advance to 0.2%. The JPY weakened after Bank of Japan Governor Kuroda reiterated that, despite progress in the battle against deflation, the bank remains far from achieving its goal of inflation close to 2%. Kuroda also said that he monitors foreign-exchange rates, though does not manage monetary policy to stabilize them
  • Trading flows were “slow and steady” as the USD/JPY climbed from ~110.35 at the start of the session, said a trader in New York familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. Stop-loss buy orders were tripped after the USD rose above its 200-DMA at 110.50 and more stops ~110.80 were tested, but left largely intact as the dollar stalled at 110.81, despite UST yields holding close to session high
  • EUR/USD fell to a fresh low for June, slipping to 1.1166 with little fanfare in morning trading, then briefly rebounded back above 1.1200. Macro and model-driven accounts continue to trim EUR long positions after the shared currency extended its drop following its failure to breach its post-election high at 1.1300. Remarks from ECB’s Nowotny that there is “risk that inflation rates come in even lower if I assume a further increase of the euro exchange rate, which would be inflation dampening” added to the cautionary tone aired by Draghi Thursday. On that day, the ECB trimmed its inflation outlook while acknowledging recently robust economic data, a step that weighed on the shared currency
  • The Canadian dollar surged to a fresh high for the month, pressing the USD under 1.3425 after the Canadian economy added 54.5k jobs in May vs estimates for a gain of 15k, with full-time employment rising 77k as part-time employment fell 22.3k
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