The dollar index (DXY00) on Friday fell by -0.19%. The dollar was under pressure on Friday after the S&P 500 rallied to a new all-time high, curbing liquidity demand for the dollar. Also, the University of Michigan’s US May consumer sentiment index fell more than expected to a record low. In addition, strength in the Chinese yuan weighed on the dollar today after the yuan rallied to a 3-year high. Finally, strength in EUR/USD is negative for the dollar after hawkish ECB comments pushed the euro higher.
Friday’s US payroll report was mixed for the dollar after nonfarm payrolls rose more than expected, but hourly earnings rose less than expected.
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In the latest developments in the Middle East, Iran’s semi-official Tasnim news agency said Iran seized an oil tanker on Friday in the Strait of Hormuz for “attempting to disrupt oil exports and the interests of the Iranian nation.” Also, US forces targeted missile and drone launch sites and other military assets in Iran that were responsible for attacking three US Navy destroyers transiting the Strait of Hormuz.
The markets are awaiting further updates after the US presented a proposal to Iran that would gradually reopen the Strait of Hormuz and lift the US blockade on Iranian ports. Negotiations over Iran’s nuclear program would come later in the process. Iran is expected to respond via Pakistan in the next few days.
US Apr nonfarm payrolls rose by +115,000, stronger than expectations of +65,000, and Mar nonfarm payrolls were revised upward to +185,000 from the previously reported +178,000. The Apr unemployment rate was unchanged at 4.3%, right on expectations.
US Apr average hourly earnings rose +0.2% m/m and +3.6% y/y, weaker than expectations of +0.3% m/m and +3.8% y/y.
The University of Michigan’s US May consumer sentiment index fell -1.6 to a record low of 48.2 (data from 1978), weaker than expectations of 49.5.
The University of Michigan US May 1-year inflation expectations rate unexpectedly eased to 4.5% from 4.7% in Apr, below expectations of a rise to 4.8%. The May 5-10 year inflation expectations rate unexpectedly eased to 3.4%, weaker than expectations of no change at 3.5%.
Swaps markets are discounting the odds at 6% for a 25 bp rate cut at the next FOMC meeting on June 16-17.
EUR/USD (^EURUSD) on Friday rose by +0.47%. The euro rallied on Friday amid hawkish ECB comments that suggest the ECB may raise interest rates at its next meeting in June if the US-Iran war continues and the Strait of Hormuz remains closed. German economic news on Friday was mixed for the euro. Trade news for March was better than expected, although industrial production unexpectedly declined.
German Mar industrial production unexpectedly fell by -0.7% m/m, weaker than expectations of a+0.4% m/m increase.
German trade news was better than expected,