In the afternoon, the dollar experienced a downturn as the ISM services report for May revealed a contraction, driven by a decline in business demand and a significant fall in new orders, with tariff policy uncertainties delaying customer decisions. Prices surged, suggesting tariff costs are being through to service providers. The ADP payroll figures fell short of expectations, prompting Trump to once again urge Powell and the Federal Open Market Committee (FOMC) to consider a rate cut.
Oddly, markets ignored the PMI services number which came out at the same time as the ISM number. PMI services pointed to further expansion and historically the PMI number has been the more accurate survey since the pandemic.
The Bank of Canada held interest rates as expected.
Read more about the BoC's interest rate decision here - When is the next Bank of Canada rate announcement?
*Daily move - against G10 rates at 7:00 am, 05.06.25
** Indicative rates - interbank rates at 7:00 am, 05.06.25
The European Central Bank (ECB) will almost certainly cut rates by 25bp this afternoon and markets are expecting one more cut in September. Lagarde’s guidance will be more important and we will be waiting to see what the ECB’s news forecasts for inflation are. Lower forecasts and we would expect more dovish repricing on rate expectations and we could see a weaker euro as a result.
Read more about the ECB's interest rate decision here - When is the next ECB interest rate decision?
US jobless claims will also be scrutinised ahead of the non-farm payrolls report tomorrow and anything weak will likely add to further weakness on the dollar. Both GBPUSD and EURUSD are currently trading near 2025 highs.
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