The foreign exchange markets saw significant movements over the course of this week in reaction to disappointing economic data coming out of the United States. In May, the ISM Services PMI fell to 49.9, below analysts’ expectations of 52. This surprise drop triggered a surge in volatility on most major currency pairs.
The British Pound (GBP) appreciated against the US Dollar (USD), advancing to around 1.3560. Traders on the other hand are getting a bit squeezed by all the USD selling. As a result, they are aggressively searching for greater value in GBP. At the same time, the Euro (EUR) took a turn to the upside too, pushing the EUR/USD currency pair to test daily highs above the 1.1400 barrier. The Euro’s upward momentum was catalyzed by the poor ISM read, inspiring an investor rethinking.
Analysts noted that the EUR/USD pair “flirts with daily highs past 1.1400 on weak ISM data,” according to FXStreet. The Euro is receiving very solid demand in the markets. This recent boom is a sign of increasing worries over the future health of the US economy.
The Australian Dollar (AUD) struggled mightily against its US counterpart. Even with the AUD holding in positive ground after a mixed batch of high-impact Australian economic data, the AUD/USD pair still found it difficult to keep upward pressure. The Australian Dollar stays on the back foot as the US Dollar steadies ahead of ISM Services PMI.
“The Australian Dollar remains subdued as US Dollar holds ground ahead of ISM Services PMI.” This general sentiment in addition to a plethora of other uncertain economic indicators has led traders to adopt a wait and see approach.
Yesterday, the precious metals followed suit, mirroring the market’s fearful demeanor. Gold prices remained in the $3,350 per ounce range. The market appeared to remain on the sidelines, digesting the underwhelming economic releases from ADP and ISM. The May ADP report was even worse than expected, adding to fears in the market that things were worse than expected.
As central banks around the world continue to steer through uncharted economic waters, all eyes are focused on their next steps. Perhaps the best example of this point comes in the speculation surrounding a possible Trump-Xi call. Such a conversation would be deeply disruptive for global trade and currency market stability.
The impact of the global easing cycle that central banks started last June cannot be overstated. Following a surge in interest rates during 2022-2023, traders remain vigilant regarding upcoming decisions and their impacts on currency values.