CURRENCIES: Dollar Stages Modest Rebound After Two-day Decline

By Anora Mahmudova, MarketWatch , Rachel Koning Beals Features Dow Jones Newswires

Sterling extends loss as conflicting election polls weigh on sentiment

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The U.S. dollar staged a modest recovery on Thursday after two session of declines. In late New York trade, the dollar gained ground against the euro, British pound and the Japanese yen.

However, some analysts suggested not to read too much into the rebound, saying it was more due to consolidation of losses, rather than a rebound.

The ICE Dollar index , which measures the buck against a basket of six major rivals, wobbled slightly, but remained higher after mixed economic reports, trading up 0.3% at 97.200.

Read: Opinion: Theresa May is doing a great Hillary Clinton impersonation with her campaign (http://www.marketwatch.com/story/theresa-may-is-doing-a-great-hillary-clinton-impersonation-with-her-campaign-2017-06-01)

Private-sector hiring surged in May (http://www.marketwatch.com/story/private-sector-job-growth-rebounds-to-rip-roaring-pace-in-may-adp-says-2017-06-01), with employers adding a seasonally adjusted 253,000 during the month, according to payroll processor ADP. Weekly claims for unemployment benefits in late May (http://www.marketwatch.com/story/jobless-claims-climb-to-5-week-high-of-248000-2017-06-01)rose to a five-week high, but remain at historically low levels.

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Meanwhile, U.S. manufacturing continued to churn higher in May (http://www.marketwatch.com/story/us-manufacturing-kept-strength-in-may-ism-survey-finds-2017-06-01), with the ISM index rising to 54.9.

"Economic data continue to point to steady growth. Traders have been fully pricing in a June rate hike for weeks and a solid jobs number [due on Friday] can only further cement that expectation. But even a weak number will not take off the risk of a hike this month," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

Esiner said even with the tightening monetary policy and better economic growth, the dollar has only limited range for a rally, however.

"Europe is playing catch-up both in economic and monetary sense and we are approaching a phase of a lot less divergence between the U.S. and the eurozone. While it's true that the euro strengthened as political risks receded following French election, the European Central Bank is not willing to push the euro too much higher, because that will impact growth and inflation targets," Esiner said.

Still, the shared currency had strengthened recently as the dollar has weakened on worries that President Trump may have trouble pushing through policies aimed at stimulating U.S. economic growth.

The euro traded at $1.1217 late Thursday in New York, down 0.3% from $1.1247 late Wednesday in New York. The single currency gained 6.7% against the dollar since the start of the year.

Read:'Euro-dollar parity is dead,' say analysts (http://www.marketwatch.com/story/euro-dollar-parity-is-dead-say-analysts-2017-05-30)

The dollar rose against the yen to Yen111.30 late Thursday in New York, up 0.5% from Yen110.78 late Wednesday.

The British pound remained volatile, falling against chief rivals Thursday, following conflicting reports about the support for U.K. Prime Minister Theresa May's Conservative Party in the June 8 general election.

The pound was trading at $1.2881 late Thursday in New York, little-changed from $1.2891 late Wednesday in New York.

A YouGov survey for The Times newspaper out late Wednesday showed a three-point lead for the ruling Conservative Party over the opposition Labour Party. That marks a big shift from the 20-point advantage the Conservatives had in April when the election was announced.

"Sterling is likely to remain volatile over the next week as we approach the election on 8 June. Recent polls have shown that Theresa May's lead has narrowed, in some cases quite considerably, which has sent the pound into a bit of a tailspin at times," said Craig Erlam, analyst with Oanda.

Don't miss:Theresa May could lose majority in U.K. election, pollster finds (http://www.marketwatch.com/story/theresa-may-could-lose-majority-in-uk-election-fresh-research-finds-2017-05-31)

Read:Don't dump the British pound! Buy it, UBS says (http://www.marketwatch.com/story/dont-dump-the-british-pound-buy-it-ubs-says-2017-05-31)

A few weeks ago, the Tories stood to increase their majority in a landslide, if polls were to be believed. The pound was pushed above $1.30 on hopes a bigger Conservative majority would strengthen May's negotiating power in the coming Brexit negotiations with Brussels, as the U.K. looks to establish fresh trade ties after its vote a year ago to exit from the European Union, dubbed Brexit.

As for Thursday data, growth in the U.K. manufacturing sector slowed down in May, with the purchasing managers index for the sector slowing to 56.7 from April's three-year high of 57.3. The result did top expectations. A reading above 50 signals expansion. The report had little impact on an election-focused currency market.

Against the euro, the pound initially fell, but reversed to trade at EUR1.1487 late Thursday in New York from EUR1.1461 late Wednesday in New York.

Opinion:May will win the U.K. general election--and catapult stocks and the pound (http://www.marketwatch.com/story/theresa-may-will-win-the-british-general-election-and-catapult-stocks-and-the-pound-2017-05-24)

While the pound has waxed and waned versus the dollar on the shifting polls, it has largely stayed close to seven-month highs. But against the euro, sterling has lost nearly 5% after its bump following the election announcement.

China's yuan

Elsewhere, the Chinese yuan's strengthened a fourth straight session. It is the strongest four-day run in more than a decade. Late Thursday in New York, the dollar bought 6.8070 yuan, down 0.2% from 6.8223 late Wednesday in New York.

Until this week, the yuan had been trading in a narrow range in a tranquil market.

On Thursday China's Caixin manufacturing PMI slipped into contraction territory, falling below 50. The headline number fell to 49.6 from 50.3. Output, however, held just above 50 at 50.2, down from 51.0. A reading of 50 signifies economic expansion.

"This [yuan] rally is in the context of broad dollar weakness but also on the heels of last Friday's news that 'counter cyclical factors' were now going to be considered when fixing the daily reference rate for the yuan. In other words, the [People's Bank of China] said screw the shorts," Peter Boockvar, chief market analyst at The Lindsey Group LLC, wrote in emailed notes. Shorts refer to those looking to bet on the currency falling against rivals, namely the dollar.

"China's economy has been in the far back area of people's minds for a while but should not be ignored," Boockvar said.

(END) Dow Jones Newswires

June 01, 2017 15:23 ET (19:23 GMT)