US recap: EUR/USD up on US data, but next week's reports are crucial
USD/CNH-Yuan bulls don't like what they see at month's end
USD/CAD post-PCE slide pared amid dovish BoC rate expectations
May 31 (Reuters) -The dollar index was down 0.08% on Friday and roughly the same amount for the week after a spate of somewhat softer-than-expected U.S. data since Wednesday's pessimistic beige book report yanked Treasury yields off late-May highs.
However, next week's top-tier U.S. data might have to underwhelm to take the index below key supports tested on Friday.
U.S. overall and core PCE inflation gauges -- closely watched by the Fed -- were up 2.7% and 2.8% year-on-year again, as forecast, but the 0.2% monthly core PCE rise was below the 0.3% forecast. Personal consumption, the primary driver of GDP, rose just 0.2% versus 0.3% forecast and a downwardly revised 0.7% rise in March.
Those modest misses were followed by the weakest Chicago PMI since 2020's pandemic and post-financial crisis lows, with the Dallas Fed's trimmed-mean PCE at a 2.7% annualized rate versus 3.3% in March.
Two- and 10-year Treasury yields fell roughly 4bp, though futures pricing of Fed rate cuts in September and December only inched up slightly to 15bp and 37bp.
Next week's ISMs, JOLTS and employment reports will shed fresh light on the economy, potential Fed policy and the dollar's yield support. The manufacturing and services ISMs are both forecast to be firmer. JOLTS are expected to continue sliding toward pre-pandemic levels.
Friday's non-farm payrolls are forecast at 180k from 175k in April, with the jobless rate seen steady at 3.9% and average hourly earnings up 0.3% month-on-month at 3.9% year-on-year.
EUR/USD's initial rally on the PCE report ran into resistance by May and April highs just shy of 1.09, leaving it up a modest 0.17% on the day and 0.04% on the week.
Above-forecast euro zone inflation on rebounding services prices was marginally supportive, but a much bigger than forecast fall in German retail sales created a mixed picture and left the ECB highly favored to cut rates next week, but maybe not again until October.
USD/JPY dropped to flat after the U.S. data, but then recovered for a 0.25% gain in line with the broader dollar rebound and steadying of Treasury yields. Now confirmed MoF yen interventions and falling Treasury-JGB yield spreads amid expected Fed-BoJ convergence, raises the bar for the hefty long spec cohort as May and April intervention points below 158 and by 160 remain close by.
Sterling was flat, struggling some amid the more risk-off markets since midweek.
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Editing by Burton Frierson
Randolph Donney is a Reuters market analyst. The views expressed are his own.
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