Euro Weakens Mildly as German Unemployment Rose

Euro dips mildly against dollar and yen today after German data showed that unemployment unexpectedly rose 24k in May, versus expectation of -14k fall. Unemployment rate was unchanged at 6.7%. While EUR/USD breached 1.3612 temporary low, loss is so far limited. Indeed, the common currency is higher against Sterling and Aussie. There is some support from confidence indicates from Eurozone. Business climate rose to 0.37 in May versus expectation of 0.35. Economic confidence rose to 102.7 versus consensus of 102.2. Industrial confidence rose to -3 versus expectation of -4. Consumer confidence rose to -7.1. Services confidence rose to 3.8 versus expectation of 3.5. Also released from Eurozone, M3 money supply rose 0.8% yoy in April versus expectation of 1.2% yoy.

ECB executive board member Mersch said that expectations on the central bank “have been raised” because it has showed its comfortable “acting with both conventional and unconventional measures.” And, he noted that ECB is broadening the tool box and will present the findings to the governing council. And, he affirmed that ECB is ready to act in June in face of stubbornly low inflation. If interest rate cut is to be decided, all three key rates, the main refi rate, the deposit rate and the marginal lending facility will be lowered.

Other data released from Europe saw UK CBI reported sales dropped sharply to 16 in May versus consensus of 36. Swiss GDP rose less than expected by 0.5% qoq in Q1. Swiss UBS consumption indicator dropped to 1.72 in April. Elsewhere, Australian Westpac leading index dropped -0.5% mom in April.

The US calendar is empty today. But dollar could try to extend this week’s rebound together with stocks. S&P 500 futures point to higher open and the index could maintain recent bullish momentum for another record high today. Yesterday, Atlanta Fed Lockhart said that Fed is “not in a rush” to raise interest rates to end the era of ultra loose monetary policy. He noted that there is a combination of “shortfall from full utilization” of labor resources and inflation below target. And these shortfalls “justify patience in raising policy rates.” And he emphasized the see to have “confirming evidence in the data validating the view that above-trend growth is occurring and is sustainable”. And, “a number of months” is needed for him to arrive at that conviction. Meanwhile, he said when Fed begins tightening, it will begin with “a cycle of gradually rising rates”.