US Open Note – Stocks muted near highs, dollar receives hawkish shot

Stocks risk appetite fades; dollar briefly gains an edge

US major indices remained largely unchanged near their highs, while the dollar got a boost from the Fed tapering talk-jab, which saw the greenback regain the upper hand over some of its peers in the forex space. The dollar index extended yesterday’s price developments towards the 90.20 mark but the recent dollar strength may not prove so sustainable, especially as this week’s market sentiment is highlighted by NFP payrolls.

The EUR/USD pair was pushed to $1.2170 and GBP/USD to $1.4140 before the dollar started to falter.

Price pressures and the 10-year yields (1.58%) are not helping the dollar but increased dialogue on getting closer to tapering QE, is bolstering the reserve currency. Fed officials seem to be gradually becoming more hawkish with the latest supporter being St. Louis’s Fed President Bullard, who signalled that the labour market is stronger than it appears to be; however this remains to be seen with Friday’s NFP figures, especially after yesterday’s manufacturing employment index came in at 50.9 in May, only just in expansion territory.

Noteworthy is the fact that labour supply is lethargic due to the struggles in hiring under the current coronavirus circumstances and this remains a negative towards the labour data.

Gold and silver recovered some of their lost glow from yesterday, with gold pushing back to the $1,907/oz mark and silver to the $28.00/oz level.

Black gold and the loonie

WTI futures are holding around $68.40 per barrel. The picture for oil prices looks optimistic due to expectations of growing demand. Furthermore a delay in Iranian production flowing into markets as well as OPEC holding off from planned increases in oil production till July could help lift the price of the black liquid.

The Canadian economy remains vibrant with the Bank of Canada remaining accommodative for the remainder of the year. Furthermore, Canada’s building permits beat the forecast of -5.2% for April coming in at -0.5% m/m. This and rising oil prices could strengthen the loonie; however the C$1.2000 mark seems to be the floor for now.

In terms of central bank speakers, ECB's Weidmann and Lagarde could make policy-related comments later in the day while in the US, the Fed's Harker, Evans, Bostic and Kaplan are also making appearances.

Key for the markets will be the release at 18:00 GMT of the US Beige Book survey of regional economic conditions.

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