02/08/2024
US dollar update
Summary
The US Dollar Index (DXY) exhibited mixed sentiment leading up to the Non-Farm Payrolls (NFP) report, with the index dropping below 104.00. Recent economic data revealed a cooling labor market, with the latest jobless claims rising to 249,000, the highest level in nearly a year. Additionally, the ISM Manufacturing PMI for July fell to 46.8, reflecting contraction in the sector, while the employment component dropped to its lowest level since June 2020. The ADP Employment report also showed a decline in job growth to 122,000, indicating weakening labor conditions.
Fed Chair Jerome Powell’s comments after the Federal Open Market Committee (FOMC) meeting emphasized the balanced risks between a slowing labor market and elevated inflation. Although the Fed kept interest rates unchanged, markets have fully priced in a 25-basis point rate cut for September, with further easing expected by year-end if inflation continues to cool.
Wage growth expectations for July also softened, with economists predicting a 3.7% year-on-year increase, down from 3.9% in June. A weaker labor market and slower wage growth could further dampen consumer spending and inflation, increasing the likelihood of rate cuts later in the year.
Traders are closely monitoring key technical levels, with immediate support for the DXY around 103.62 and resistance near 104.54. The dollar’s movement will be heavily influenced by the NFP report, as a significant miss could reinforce expectations of multiple rate cuts in 2024. Additionally, geopolitical tensions and declining US Treasury yields are contributing to the dollar’s safe-haven appeal, particularly against risk-sensitive currencies.
Market Views & Opinions
ING in today’s post ‘FX Daily: Dual mandate test for the dollar’ concludes about the USD:
“We are bearish on the dollar today because a) evidence from employment components of the ISM and NFIB surveys suggest the risks are skewed to a weaker payroll print, and b) once the equity turmoil and safe-haven demand abate, the macro drivers should drag the USD lower. We continue to look at a drop below 104.0 in the near term in the US DXY index.”
According to Reuters:
‘What we’re seeing this morning is a continuation of what we saw yesterday, which is markets striking a very risk-averse tone since the ISM manufacturing data,” said Michael Brown, market strategist at Pepperstone in London.’
’The market seems to already price in a very weak nonfarm payrolls, so if we get something anywhere near consensus, dollar yields are likely to move higher, which in turn will probably drag the dollar index,’ said Mizuho economist Colin Asher.’
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The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
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