Dollar Sinks as Global Yields Rise, ADP Employment Disappoints

Updated on
  • EUR touches 1.1425 after ECB reveals easing bias discussed
  • Market focus on Friday’s NFP numbers after ADP employment miss

The dollar was trading on a defensive footing, with its biggest loss in a week, amid a global bond sell-off that saw a climb in euro area bond yields outpace a similar move in U.S. Treasury yields.

The greenback was lower versus a majority of its G-10 peers, with the Bloomberg dollar index down about 0.3 percent. Traders were inclined to maintain a low risk profile ahead of potentially key Fed speakers Thursday and the June U.S. employment report due Friday.

  • The dollar more than doubled its decline from overnight after the ADP Research Institute reported that the economy added 158k jobs in June vs estimates for a gain of 188k; losses were extended after ECB’s Weidmann added to the cautiously positive tone from the central bank’s June minutes when he said “the continued economic recovery is opening the perspective of a monetary-policy normalization,” the time and pace of which “depend on the sustainability of inflation”
  • The ECB minutes showed that members discussed the health of the economy and the implications of shifting away from the easing bias that is associated with its bond-buying program. Officials decided that the topic could be revisited at a later date as “even small and incremental changes in the communication could be misperceived as signaling a more fundamental change in policy direction” that would lead to an unwarranted tightening in financial conditions, the account showed
  • A sell-off in global bonds saw yields rise across Europe and the U.S., with the 10Y bund yield climbing more than 9bps to its highest in 18 months. At the same time, the yield on the 10Y UST rose ~7bps, giving the euro an advantage on the day
  • EUR/USD was near a fresh session high of 1.1425 in late trading as it extended gains above 1.1400. Trading flows were mostly modest outside of early gains that were fueled by JPY selling vs GBP and EUR in the European session, according to traders familiar with the transactions who asked not to be identified because they are not authorized to speak publicly. EUR may face technical resistance at the 1.1427 high seen July 3. Stop-loss buy orders are positioned above 1.1450, just beyond the 1.445 YTD high, a trader in London said
  • Attention will turn to Friday’s U.S. jobs report, where nonfarm payrolls are expected to add 178k jobs in June vs 138k jobs added in May; estimates see the unemployment rate holding steady at 4.3%. Equal focus will be on the average hourly earnings component as the Fed eyes inflation gauges while setting monetary policy
    • “If we don’t get stronger numbers, you have to disregard the potential for a dollar recovery for the next couple of weeks,” given that Friday’s job report is the last of “tier one” data for a while, said Mark McCormick, FX strategist at Toronto Dominion Bank. “If we don’t get a decent number, I would argue that you’re not going to see a change in positioning and a tactical recovery start.”
    • Traders will also eye remarks from Fed Vice Chair Stanley Fischer, who will speak at 7:30pm ET Thursday on government policy and labor productivity. Earlier in the day, Fed Governor Powell spoke in Washington on housing finance reform
  • USD/JPY was little changed at ~113.20, relinquishing gains from overnight that peaked at 113.47; the pair dropped as a decline in global equities spilled over into U.S. stocks. USD/JPY may find stop-loss sell orders below the overnight low at 112.89, a trader in London said
  • Elsewhere, GBP grabbed market attention when it spiked ~40 points in less than a minute during European trading as a large GBP/JPY buy order sapped liquidity, according to traders. GBP/USD trading at ~1.2973 vs session high at 1.2984
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