The Dollar had a very slight wobble yesterday, not helped by weaker-than-expected non-manufacturing PMI data for April. The service sector accounts for about 70% of the US economy so the not-insignificant fall in the PMI to 56.8 from 58.8 in March was bound to catch markets’ attention. But this Dollar dip has proved short-lived. The Dollar is slightly stronger against most developed and emerging market currencies today although GBP/USD and in particular EUR/USD have traded in very narrow ranges in the past three sessions.
The focus now turns to US labour market data for April. The change in non-farm payrolls and unemployment rate tend to grab the spotlight. However, hourly and weekly earnings growth probably matters more to the Federal Reserve. Rising wage growth is likely to stimulate demand-pull inflation and measures of US inflation and could at the margin increase the odds of the Fed considering three (rather than two) more rate hikes this year.
