Payrolls arrive with Hormuz risk back on the boil
Markets turn to today’s payrolls report as renewed uncertainty around Hormuz keeps risk sentiment fragile and the dollar supported.
USD
Thursday saw the dollar reverse its midweek slide, closing as the best performer in the G10 with the DXY up around 0.3% to sit just shy of the 100 mark this morning. First, Hormuz optimism soured after Iranian state-linked media circulated a draft transit plan far more restrictive than markets had assumed, barring US and Israeli vessels and making full reopening conditional on Washington lifting its blockade. Second, labour market data surprised hawkishly, with Challenger layoffs at a two-year low, claims steady at 199k, and productivity beating alongside cooler unit labour costs. Whether or not that strength persists, however, now depends on today’s NFPs report. Consensus sits near 80k after June's 57k print, with unemployment seen unchanged at 4.2%. We are bearish relative to consensus on this occasion, looking for a modest headline miss. That leaves dollar risks skewed marginally to the downside ahead of the weekend in our base case, with an outside chance of a sharp greenback selloff, if payrolls land in negative territory.
EUR
Having touched its best levels since mid-June earlier in the week, the euro's recovery ran out of road on Thursday, with EURUSD easing to trade just above 1.15 this morning. June retail sales undercut the recent run of upside surprises, falling 0.3% against expectations for a modest gain, a reminder that the consumer remains fragile. A renewed crude rally overnight is also an unhelpful terms-of-trade shock, reviving war-driven inflation concerns, while a handful of data points released already this morning have continued the theme of disappointment. German Industrial production slowed to 0.2% growth in June, and although exports beat despite a 14% slump in US-bound shipments, imports recorded an even larger surge. And with that, the eurozone calendar is now done for the week, meaning that payrolls dictate the close. Granted, we are dollar bearish, posing a modest EURUSD upside risk, still, we think a confirmed ceasefire, not reopening headlines or soft NFP figure, is likely needed to sustain a break above 1.16.
GBP
Sterling spent yet another session as a passenger on Thursday, with cable slipping overnight on renewed Middle East risks. A blank data calendar means that US payrolls will be the focus today, albeit with Gulf headlines adding the mood music. Given our expectations for NFPs, we think that leaves cable risks tilted to the upside today, with sterling once again hostage to external events ahead of Monday’s REC report on jobs landing.
CAD
The loonie was Thursday's standout, with USDCAD ending barely changed around the 1.40 handle. An oil price jump on the restrictive Hormuz draft helped offset broad greenback strength, while July's services PMI rose to 49.1, beating expectations and capping a decent domestic run after Tuesday's four-year-high June trade surplus. Attention turns to this afternoon's double bill at 13:30 BST, when the July Labour Force Survey lands alongside US payrolls. Consensus as of this morning looks for a gain of around 20k with unemployment steady at 6.5%, a mix unlikely to shift the Bank of Canada from extending its 2.25% hold next month, leaving the domestic print second fiddle to the US number. Ivey PMI follows at 15:00 BST. We remain of the view that a sustained break below 1.40 requires calmer Gulf geopolitics and concrete CUSMA review progress, neither of which today's data can deliver.