05/07/2024
US dollar update
Summary
The US Dollar, as represented by the DXY Index, has shown continued weakness, primarily influenced by recent economic data and market expectations. Several factors have contributed to this trend.
Economic data has played a significant role. Private sector employment figures for June, reported by ADP, showed an increase of 150,000 jobs, falling short of the expected 160,000. Weekly jobless claims were reported at 238,000, exceeding the forecast of 235,000. The ISM Services PMI indicated a contraction in June, with the index falling to 48.8 from 53.8 in May, missing market expectations of 52.5. Additionally, JOLTS job openings increased by 221,000 from the previous month to 8.140 million in May, surpassing expectations.
The Federal Reserve’s recent actions and market expectations around interest rates have also influenced the dollar’s performance. Minutes from the Fed’s June 11-12 meeting highlighted concerns over a slowing economy and easing price pressures, yet officials remained cautious and data-dependent, not committing to rate cuts. Market participants are now placing a 72.6% probability on a rate cut until September, driven by disinflation signals and a cooling labor market.
The labor market’s performance is another critical factor. The June Nonfarm Payrolls (NFPs) report is expected to show an increase of 190,000 jobs, down from 272,000 in May, with the unemployment rate projected to remain at 4.0%. The unemployment rate has stabilized at 4.0%, maintaining the level from May, which was the highest in two years. Average hourly earnings are expected to rise by 3.9% year-on-year in June, following a 4.1% increase in May. Wage growth remains a critical focus, as it impacts inflation and Fed policy decisions.
Market reactions and currency movements have been notable. The dollar index recently declined below 105, as investors anticipate a cooling labor market and potential rate cuts. External pressures include a rallying euro, driven by ECB concerns over inflation trends, and a strengthening sterling, influenced by UK election polls suggesting a Labour Party victory.
Overall, the combination of weaker-than-expected economic indicators, cautious Fed policy, and shifting market expectations has contributed to the recent decline in the US Dollar. The upcoming US Jobs Report will be crucial in determining the future direction of Fed policy and the dollar’s trajectory.
Market Views & Opinions
Citigroup in TODAY’S PREMIUM ACCOUNT PICK – Analysis of today’s premium account pick:
“Targeting the topside of EURUSD 1.05 – 1.1050 range
There is now a heightened risk of the Fed shifting course back to signal multiple rate cuts this year as the economic backdrop deteriorates. This could send DXY back to its 102 – 104 range, which may support the EUR.”
ING in today’s report ‘’FX Daily: Inflection point?’ concludes about the US Dollar:
“We see downside risks for the dollar today, and expect DXY to move below 105.0. A substantial repricing in Fed dovish bets may give some respite to the yen, although we continue to see the likes of Norway’s krone, and the Australian and New Zealand dollars as the best-positioned G10 currencies for a US-macro led rally in high-beta FX.”
IMPORTANT DISCLAIMER
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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