Euro surrenders gains

EUR/USD surrenders the majority of intraday gains in Thursday’s American session. The major currency pair drops from the intraday high of 1.0860 after the S&P Global published a strong preliminary United States (US) Purchasing Managers Index (PMI) report for May. The agency showed that Manufacturing PMI rose to 50.9, beating expectations and the prior reading of 50.0. The Services PMI that represents the services sector, which accounts for two-thirds of the US economy, jumps to 54.8 from the estimates and the former reading of 51.3. 

Strong US PMI readings suggest a strong US economic outlook that indicates strong labor demand and robust consumer spending. The agency commented, "The US economic upturn has accelerated again after two months of slower growth, with the early PMI data signalling the fastest expansion for just over two years in May. The data put the US economy back on course for another solid GDP gain in the second quarter. 

The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, recovers its entire intraday losses and jumps to near 104.90. However, the near-term outlook is still uncertain as investors remain confident that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. 

Traders didn’t pare bets supporting Fed rate cuts in September despite hawkish commentary on the interest rate outlook by Fed officials indicated by the Federal Open Market Committee (FOMC) minutes for the May meeting, which was released on Wednesday. 

The impact of the FOMC minutes was expected to be temporary on the US Dollar as officials were worried about stalling progress in the disinflation process on the basis of three hot inflation readings of the January-March period. While investors’ firm speculation on rate cuts in September is built on an expected decline in the inflation data indicated by the Consumer Price Index (CPI) report of April. 

Meanwhile, the US Department of Labor has reported that the number of individuals claiming jobless benefits for the first time was lower than expected in the week ending May 17. Initial Jobless Claims were recorded at 215K, fewer than the consensus of 220K and the prior reading of 223K, upwardly revised from 222 K.