OPEC+ meeting, ADP nonfarm employment and jobless claims are in focus

On Thursday, the euro and the yen rose against the dollar in the early European session. At the same time, the Swiss franc reached a one-month high against the euro after Swiss inflation surged to its highest in 14 years.

The dollar reached a three-week high against the yen in Asia markets. It remained strong against other major currencies, supported by this week's increase in US Treasury yields, which hit a two-week peak overnight. It has been a week since we have seen a bullish reversal in Treasury yields - the yield on the 10-year is now back around 3% - and the dollar has strengthened. There is a situation almost identical to what we saw last week when there was talk of a potential pause in tightening.

As a result of the data showing a pickup in US manufacturing activity in May, coupled with strong demand for goods, the 10-year yield hit a two-week high of 2.951% on Wednesday.

Short-lived dollar weakness

The emerging market currency index dropped to its weakest level since the end of 2020 last month due to safe-haven dollar inflows. Although the dollar weakened after markets scaled back on aggressive Fed hike bets, the index recovered later.

It appears now that the dollar's recent weakness will be short-lived and will strengthen against most emerging market currencies by the end of the month.

Due to the sanctions that the EU and the US have imposed against Russia in response to its invasion of Ukraine, oil benchmarks have advanced for several weeks. However, on reports that OPEC+ might be open to expelling Russia from its oil production deal, prices fell back from 3-month highs yesterday. It was reported by the Financial Times that Saudi Arabia is ready to increase its oil production if Russia's output drops precipitously. Still, other members of OPEC+ are expected to maintain their production policies.

Events of today

From the data front, investors are waiting for the weekly jobless claims, which are expected to come at 210K, remaining unchanged.

ADP nonfarm employment change is also expected to cut its slowdown by climbing to 300K in May, compared to 247K in April.

US employment growth may be slowing, but the economy is still growing at a relatively healthy rate, as evidenced by a further drop in unemployment. The number of April job openings released Wednesday declined sharply from the previous month, while the ISM manufacturing PMI came in at 56.1 for May, up from 55.4 in the last month. 

We will also examine revisions to the last headline numbers, as the employment forecasts for three of the previous four months have been significantly lower than the reported figures.