US dollar sentiment deteriorates despite bullish Fed statement and jobs report

The continued strength of the labor market was emphasized in the Fed statement which was interpreted as a sign the central bank plans two more rates this year as previously expected. The central bank’s assessment that consumer spending continued to be solid, business investment had firmed and inflation has been "running close" to the Fed's target was deemed bullish. The labor market remains the bright spot of economy with nonfarm payrolls adding 211000 new jobs. This is the third reading exceeding the 200000 level in the last four months. Federal Reserve estimates about 100000 new jobs are needed to employ new entrants into the labor force. Unemployment rate fell to 4.4% in April from 4.5% the previous month, and the growth in average hourly earnings accelerated as it rose 0.3% in April following 0.1% rise in previous month. US services sector expanded as Markit’s services activity report for April showed an increase to 53.1 from the previous month’s 52.5. And ISM reported a nonmanufacturing index of 57.5, indicating growth, from previous month’s 55.2 reading. The reading on factory orders was soft though as factory orders rose only 0.2% in March after upwardly revised 1.2% growth in February. Investors reduced the dollar bullish bets. As is evident from the Sentiment table, sentiment deteriorated for Canadian and Australian dollars and the Swiss Franc. And the euro joined the Australian dollar as the second major currency held net long against the US dollar.

The euro sentiment improved as the euro-zone economy grew 0.5% on quarter in the three months to March of 2017, the same pace as in the previous quarter and in line with market expectations. The $0.2bn net short euro position turned into $3.05bn net long. Investors cut bot the gross longs and shorts by 3837 and 27889 contracts respectively. The British Pound sentiment improved dramatically as expansion accelerated both in construction and services sectors in April as indicated by rising Construction and Services PMIs. The net short position in British Pound narrowed $2.8bn to $3.78bn as investors reduced both the gross longs and shorts by 9371 and 43937 contracts respectively. The bearish Japanese yen sentiment intensified with a decline in consumer confidence in April and fall in wage growth as average cash earnings contracted 0.4% on year in March. The net short position in yen widened $0.58bn to $3.98bn. Investors built both the gross longs and shorts by 5116 and 10940 contracts respectively.

The Canadian dollar sentiment deteriorated significantly despite narrowing of the trade deficit in March and lower unemployment in April. The net short Canadian dollar position widened $2.8bn to $6.29bn. Investors cut the gross longs and built shorts. The bullish Australian dollar sentiment moderated as the Reserve Bank of Australia left the interest rate unchanged at 1.5% while the trade surplus declined to 3.1bn Australian dollars from 3.7bn in February. Net long position fell by $1.3bn to $1.89bn. Investors reduced the gross longs and increased shorts. The sentiment toward the Swiss franc deteriorated as the Swiss consumer confidence deteriorated dropping unexpectedly to -8 in the second quarter of 2017 from -3 in the previous three months despite a lower unemployment in April: 3.3% versus 3.4% the previous month. The net shorts widened by $0.58bn to $3.98bn. Investors built both the gross longs and shorts.