Buck dwindles as markets await labor figures and reaction
The U.S. Dollar is trading in mostly tight ranges as markets await the Non-Farm Payrolls figures and the Employment Situation report, which could provide guidance on what the Fed may do next.
July’s NFPs are expected to show an improvement from the prior month, when only 57.0K jobs were added. The expected figure today is 80.0K, so if the number is as weak as last time, it may reinforce the view that there is little need to hike interest rates while the labor market is struggling. The Unemployment Rate is estimated to be 4.2%, while Average Hourly Earnings are forecast to rise by 0.3%. Recent labor data points have shown that hiring has slowed across the board; we shall see if the official numbers confirm it.
Meanwhile, on the geopolitical front, Iran and Oman continue to negotiate a deal, but Tehran’s leaders want to bar American ships from using the critical waterway of the Strait of Hormuz. Oil prices have gone down a bit as a result, but traders are desperate for clarity about U.S. involvement and whether peace is indeed realistic. FX-wise, the Buck could be in trouble depending on today’s data and its interpretation by Fed Chairman Kevin Warsh, who has faced criticism from multiple financial news outlets about his less communicative stance. Additionally, investors are wondering whether, by aiding the Japanese financial system via FX intervention, Treasury Secretary Scott Bessent may have exercised a significant round of quantitative easing. These are crucial times for the U.S. Dollar’s direction.
What to Watch This Week…
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EUR
The Euro has not moved much overnight as all eyes are on labor-market health in the U.S. While it has gained a total of 1.0% in value since the start of July, the shared currency is staying near its strongest level against the Buck since mid-June. Next week, the focus will be on the Eurozone and how it is holding up in terms of productivity, with Q2 Gross Domestic Product due, as well as key surveys and inflation data in the form of the Consumer Price Index.
MXN
The Mexican Peso is advancing and is already very close to hitting its best level against the Buck since the end of January, following the central bank’s decision to hold borrowing costs steady. Banxico seemed confident in current conditions. At the moment, the MXN is the day’s biggest mover, climbing by 0.4% and seeming ready to reach significant historical levels. July inflation numbers from CPI showed an expansion higher than estimated, reversing the deflation seen back in June. Next week’s main items likely to cause volatility will be Industrial Production figures and talks about the future of the USMCA trade pact. MXN has appreciated 2.3% since the start of July.