Global overview
The U.S. dollar and its major peers steadied ahead of the week’s main event: America’s August employment report. While little changed Friday, the dollar was on track to halt a six-week rally, its longest in more than a year, as tepid data tipped the odds in favor of the Fed holding interest rates steady in the months ahead. Consumer optimism diminished in August, while job openings moderated to the fewest since March 2021 in July. Nevertheless, the odds only narrowly favor the Fed holding its benchmark lending rate, currently around 5.4%, steady over the balance of the year. Next to sway the Fed’s fluid rate debate will be today’s jobs report, along with the next consumer price index on Sept 13 which arrives a week before central bankers issue their next policy decision on Sept 20. Forecasts call for hiring to cool to 170,000 in August from 187,000 in July. Key for the dollar will be whether unemployment remained historically low around 3.5% and if wage inflation stayed elevated and above 4% over the last 12 months. Any material sign of the labor market cooling would further weaken the case for the Fed to hike again this year, a scenario that could weigh on the greenback.
Euro on track to snap weekly slide
The euro was on track to halt a six-week slide against the greenback, but EUR/USD would need to close Friday above 1.08. The euro strengthened earlier this week to 1.0945, its highest in two weeks, after weaker U.S. data dampened prospects for the Fed to raise lending rates again this year. Upside for the euro has been capped by uncertainty over whether the ECB will raise rates in September. Tighter monetary policy is clearly weighing on the 19-country economy as data today showed the euro zone manufacturing contracted more than expected in August.
Sterling on pace for 2nd gain in 3 weeks
The UK pound was on pace for its second weekly advance against the greenback in three weeks. The greenback underperformed this week as weaker readings on the world’s largest economy tipped the odds against the Fed raising rates again during its current tightening cycle, its most aggressive in decades. Downside for sterling has proven limited on expectations for the Bank of England to raise rates at least two more times. However, upside for the pond has been capped by worries about higher rates undermining UK growth.
Canada’s economy shrinks; U.S. unemployment jumps
The Canadian dollar was mostly steady after shock news that the country’s economy unexpectedly contracted 0.2% in the second quarter compared to forecasts to expand 1.2%. Weaker growth, however, was overshadowed by mixed U.S. employment data that suggested the Fed’s July rate hike may have been the last of the cycle. America added 187,000 jobs in August, above forecasts of 170,000. However, hiring for June and July was downgraded by a combined 110,000. Unemployment ticked up to 3.8% in August while wage growth moderated a tick to a 4.3% annual rate. The job market’s cooling trend keeps alive hopes of a soft landing for the economy and is likely to cement the buck’s first losing week in seven.
Dollar on track to snap 6-week rally
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Aug 28-Sep 1
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
