Dollar slide may continue in holiday week

The dollar is likely to extend its slide versus the euro into next week, especially if June jobs growth comes in below expectations and high-yielding currencies remain in demand. The European Central Bank is expected to leave benchmark lending rates unchanged next week. But it may indicate further rate hikes, which would also help boost the euro.
The euro advanced almost 0.4 percent this week against the dollar as of Friday, helped in part by a neutral statement from the Federal Reserve on Thursday that supported the view it will hold interest rates steady at 5.25 percent.
In a Reuters poll of primary dealers after the Fed's rate decision, nine of 17 expected the central bank to stay on hold at least through this year. For details:
"Demand for higher-yielding currencies will push the dollar lower next week, especially now after the Fed's meeting," said Mark Meadows, a market analyst at Tempus Consulting in Washington. "The Fed seemed to have moved toward a more neutral stance on rates and that for now will not help the dollar."
Trading volumes may also dwindle and volatility may increase as US stock and bond markets will be closed on Wednesday, July 4 in observance of the Independence Day holiday, analysts said.
"Holiday weeks could be tricky for the currency markets," Meadows said. "Low volumes sometimes come with higher volatility and it's not uncommon to see big swings in the dollar in such times." Economic highlights next week include Monday's Institute for Supply Management manufacturing reading and the monthly payrolls report on Friday.
The US dollar was on track to end the second quarter down about 1.2 percent versus the euro and up about 4.7 percent against the yen, its best quarter since 2001. The following are some key events next week for the foreign exchange market:
JUNE ISM MANUFACTURING - The regional manufacturing survey may suggest upside potential. The June reading is expected to remain unchanged at 55, according to a Reuters poll. Readings above 50 indicate expansion.
JAPAN'S Q2 TANKAN SURVEY OF BUSINESS SENTIMENT - The consensus calls for unchanged readings for the large manufacturers and large non-manufacturers, and improved capital expenditure plans to 9 percent from 2.9 percent.
MAY US FACTORY ORDERS - Total factory goods orders likely declined 1 percent in May. The report will contain information on nondurable goods orders, which are expected to post a small rise.
INDEPENDENCE DAY: US Markets, government offices closed.
JUNE ISM NON-MANUFACTURING: ISM non-manufacturing is expected to retrace to 58, according to a Reuters poll, in line with the slower pace of overall activity indicators.
EUROPEAN CENTRAL BANK RATE-SETTING MEETING: The ECB is expected to keep rates on hold at 4.0 percent. Since a June decision to hike the lending rate by 25 basis points, the ECB has remained on the hawkish side, supporting the view it will raise rates further this year.
JUNE US NON-FARM PAYROLLS: Market consensus is looking for payrolls to advance by 118,000 in June from 157,000 in the previous month. Pay gains are expected to be modest, with average hourly earnings up 0.3 percent. The unemployment rate is anticipated at 4.5 percent.