• Private payrolls beat
  • Paris accord on slippery footing
  • Sterling on a tightrope
  • Fed’s Powell sees no impact from tax cuts

Private payrolls grew far beyond even the highest analyst predictions in May. ADP’s monthly survey showed that the private sector added 253,000 jobs in May when economists were looking for a paltry 185,000. Services led more than 80% of the gains, led by hiring in professional and business sectors. The significant beat may cause some to revise their expectations for tomorrow’s nonfarm payrolls higher, although wages are still only predicted to rise at 0.2% from the month prior. This has boosted the dollar slightly, but no significant moves as investors continue their holding position after jobless claims also came in higher.

At 3:00 pm EST, all eyes will be on President Trump who is due to make a decision on the Paris Agreement that aims to reduce greenhouse gas emissions. During the campaign, Trump promised to withdraw from the agreement and called global warming “a hoax.” Buzz out of Washington had indicated that Trump may have been swayed towards remaining in the 195-nation agreement as his daughter Ivanka has been a staunch supporter of the accord. Yet recent hints have instead indicated that the President intends to maintain his promise to support the coal industry. Although nations like China and India fought the Agreement when it was first proposed, they’ve already made strides to pursue more sustainable technologies that are predicted to be not only cleaner, but cheaper for their countries. Pulling out could be problematic for the US economy, and should the President withdraw, we may see the dollar weaken as a result.

Although speculative traders have been scaling back their bets over the last few weeks, they are still looking for a weaker pound based on the weekly Commitments of Traders report. We will be eyeing this report as we close the week to determine whether pre-election jitters bleed into GBP positioning. Both the economic and political outlook remain highly uncertain. A weaker pound could continue to drive inflation higher and depress wages, while the fate of UK politics hangs in the balance of the snap elections next Thursday. Read more on how this could affect the pound.

In line with our view that the Fed seems more and more divided on the inflation outlook, Fed Governor Jerome Powell said he is watching inflation very carefully in a speech this morning. Powell said he still sees inflation on track towards the Fed’s 2% target given jobs data and spending trends. While this may be just another nod to reaffirming a June hike, Powell also mentioned something about policy out of the White House. He assumes that there will be tax cuts, but that they won’t affect the economy in 2018. Reading between the lines, policymakers at the Fed are still waiting on concrete evidence of fiscal spending before they revise their overall outlook for the economy.

EURUSD: The dollar euro gave up some of its overnight gains, but remains higher ahead of the US employment report tomorrow.

GBPUSD: Sterling flat today, but still slightly lower than a week ago after polls show that the elections may end in a deadlock with no majority.

AUDUSD: Aussie dollar dragged down by a drop in iron ore prices.

USDCAD: Canadian dollar mixed against the USD ahead of news on whether the US will withdraw from the Paris climate accord.

USDJPY: Dollar climbing against the yen with no clear drivers behind the move – look for President Trump’s announcement at 3 pm EST which could drive risk-related trades.