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Euro rises after ECB President’s comments

 

Friday, June 02, 2023

Today’s headlines

What’s happening: The EUR/USD forex pair edged higher on Thursday, following comments from ECB (European Central Bank) President Christine Lagarde.

What happened: The euro rebounded from a two-month low on Thursday, as traders assessed the latest economic data.

The US dollar remained weak, ahead of the Senate’s decision on the debt ceiling bill. Late Thursday, the US Senate voted 63-36 to approve the bill that lifts the $31.4 trillion debt ceiling, averting what would have been the government’s first-ever default.

Why it matters: Traders assessed Lagarde’s hawkish comments and their impact on the ECB’s future monetary policy. The ECB President said that Eurozone’s inflation was still too high and further rate hikes are needed to combat the situation.

Data released on Thursday showed inflation in the Eurozone easing to 6.1% in May, from 7.0% in the previous month. The figure was also better than market estimates of 6.3%. Although this is the lowest since February 2022, inflation remains significantly above the ECB’s target of 2%.

Other officials, including Vice-President Luis de Guindos and Bank of France governor Francois Villeroy de Galhau, said that the ECB’s previous rate hikes were proving effective in cooling inflation and that upcoming hikes would be minimal.

The ECB has increased its base rates by 375 bps over the past year. Markets now see the central bank hiking rates by 25 bps on June 15.

Traders also report to other economic reports. Eurozone’s unemployment rate fell to a record low of 6.5% in April. The region’s manufacturing PMI improved to 44.8 in May, from a preliminary reading of 44.6.

The US dollar came under pressure on Thursday, with traders trimming their speculations of the Federal Reserve hiking rates in June. The debt ceiling bill was also passed by the US House of Representatives on Wednesday.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell more than 0.7% to 103.56, down from a two-month high of 104.7 recorded on Wednesday.

The EUR/USD forex pair gained around 0.7% to 1.0764 on Thursday, compared to a two-month low of 1.0635 recorded in the previous trading session.

What to watch: With no major economic data releases from the Eurozone today, markets will watch US jobs data. The US economy is expected to add 180,000 jobs in May, following a 253,000 gain in April. The country’s unemployment rate is projected to increase to 3.5% in May, from 3.4% in April.

The markets today

Macy’s will be in focus today after reporting results for its first quarter

Context: Macy’s shares closed higher on Thursday, after the company reported upbeat earnings for the latest quarter.

Details: Macy’s quarterly results came after earnings releases by several apparel retailers. Many of them had reported upbeat profits despite a decline in sales.

Macy’s sales declined by 6.9% year-over-year to $4.98 billion, missing the consensus estimates of $5.04 billion. Adjusted earnings fell by more than 42% to 56 cents per share, but was better than the Wall Street expectations of 45 cents per share.

The company’s comparable sales fell 7.9% on an owned basis and by 7.2% on an owned plus licensed basis.

On Wednesday, the company’s board had declared a regular quarterly dividend of $0.1654 per share.

Management lowered their annual sales and earnings guidance, taking a cautious stance for the rest of the year. The company now sees full-year sales of $22.8-$23.2 billion, versus its previous projection of $23.7-$24.2 billion. Macy’s also slashed its adjusted earnings forecast to $2.70-$3.20 per share, from its prior forecast of $3.67-$4.11 per share.

How shares responded: Macy’s shares gained 1.2% to close at $13.75 on Thursday following the release of quarterly results.

What are expectations: Investors will continue monitoring inflation levels, which significantly impacts consumer discretionary spending and, in turn, Macy’s overall results.

Other Markets: US trading indices closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.47%, 0.99% and 1.31%, respectively.

The news shaping the markets

Ukraine’s President Volodymyr Zelenskyy reiterated his commitment to joining NATO and the EU at a meeting in Moldova. The safe-haven US dollar index continued move lower this morning.


South Korea’s economy grew by 0.3% in the first quarter, versus a 0.3% decline in the prior period, which lent support to the KRW/USD forex pair.


Mexico’s S&P Global manufacturing PMI fell to 50.5 in May, from 51.1 a month ago. The country’s factory activity remaining in the expansion zone for the fourth month sent the MXN/USD pair higher in forex trading this morning.


Brazil’s trade surplus widened to $11.4 billion in May, from $4.9 billion in the year-ago month, lending some support to the BRL/USD forex pair.


Colombia’s Davivienda manufacturing PMI declined to 49.9 in May, from April’s seven-month high of 52.6. The news sent the COP/USD pair slightly lower in forex trading this morning.

What else to watch today

France’s industrial production, Spain’s unemployment change, Brazil’s IPC-Fipe inflation, government revenues and industrial production, World food price index, India’s foreign exchange reserves, bank loan growth and deposit growth, Mexico’s unemployment rate, Singapore’s manufacturing PMI, US Baker Hughes crude oil rigs and total vehicle sales, Argentina’s tax revenue, as well as Turkey’s balance of trade.


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