USD: Dollar stalls ahead of labor data
The US dollar pulled back Wednesday to close at 99.59 following a string of weak labor prints throughout the week. ADP private payrolls added just 38,000 jobs in August, below forecasts and posting the smallest monthly gain since January 2026. Tuesday’s JOLTS report reinforced this soft trend, showing job openings falling to 7.27 million and quits dropping to 3.05 million. Meanwhile, ISM Manufacturing fell to 54.6 as its employment sub-index slowed to 51.2, while July construction spending contracted by 0.5%. Together, these cooling growth metrics capped the greenback’s initial rally and dragged Treasury yields lower.
However, broader demand and price metrics paint a far more complex picture for Federal Reserve policymakers. July Factory Orders rebounded by 0.9%, while the ISM Prices Paid index held at an elevated 71.1, proving that input cost inflation remains stubbornly persistent. The Fed’s latest Beige Book echoed this mixed backdrop, describing economic activity as modest and hiring as very slight. At the same time, New York Fed President John Williams urged patience, emphasizing that current policy allows time to analyze incoming data before adjusting interest rates.
Escalating Middle East conflict provided some support for the greenback despite the domestic mixed macro signals. Fresh US military strikes against Iranian coastal targets triggered swift retaliatory drone attacks on regional American bases. The fears around the Strait of Hormuz drove Brent crude oil above $95 per barrel. Soaring energy costs naturally raise global inflation expectations while simultaneously geopolitical anxiety continues to prevent a deeper dollar pullback.
Technically, the dollar index remains boxed within a tight consolidation range between 99.4 and 99.8. The immediate support level near 99.40 held firm during Wednesday’s session, but key resistance at 100 stays out of reach. All eyes shift to Friday’s nonfarm payrolls report to break the macroeconomic deadlock. A soft employment print would validate Fed dovishness and push the dollar toward lower support levels. Conversely, a strong jobs number would reignite rate hike expectations and propel the greenback higher.
EUR: Euro driven by its peers
The euro traded relatively quietly yesterday, with a few notable exceptions. EUR/NZD climbed 0.7% to a one-month high after the RBNZ delivered underwhelming guidance on further tightening. At the other end of the spectrum, the euro fell by nearly 1% against the yen as speculation grew over further intervention to support Japan’s currency. The pair remains under heavy selling pressure today.
Bank of Japan board member Hajime Takata, one of the MPC’s most hawkish voices, signalled the possibility of an outsized rate increase as well as back-to-back hikes. It would not be the first time intervention has coincided with yen-supportive rate moves. In late July, for example, the Fed’s less-than-hawkish policy meeting was followed by a heavy bout of intervention. The pattern suggests policymakers share the view that intervention alone has limited impact unless it aligns with the broader fundamental story.
Against commodity currencies such as the NOK, CAD and AUD, the euro weakened amid renewed clashes in the Middle East, which have pushed energy prices higher. European gas prices have reached a three-year high, while oil futures are edging back towards $100 a barrel. Given the conflict’s history of recurring flare-ups, however, markets have generally looked through the skirmishes, limiting more meaningful downside pressure on energy importers such as the eurozone.
Instead, upside risks to energy prices are likely to continue offsetting some of the support the euro would otherwise receive from a hawkish ECB. In other words, barring significant re-escalation, we continue to see the current geopolitical backdrop and its impact on energy prices affecting the euro more through the rates channel than through the terms-of-trade channel.
EUR/USD has consolidated around the 1.16 handle. Support near 1.1570, the previous swing low, remains key. Markets appear reluctant to fully price a Fed hike on 16 September, helping to explain the more contained selling pressure on EUR/USD. Incoming US data will provide the next major test, with Friday’s jobs report and next week’s CPI figures firmly under the spotlight.
GBP: Budget pressure builds
Andy Burnham faced his first Questions session as PM in the Commons yesterday. His responses did not appear to rattle the bond market, with 30-year gilt yields relatively subdued. That said, bonds may not have provided the clearest read given the broadly synchronised sell-off in global fixed income markets in recent days.
Thirty-year gilt yields are now at their highest levels in more than two decades, adding pressure to the UK’s already fragile fiscal backdrop. Bloomberg Economics estimates that higher borrowing costs could wipe around £12bn from the government’s £23.6bn buffer against its fiscal rules.
Burnham reiterated that “this will be a government grounded in fiscal responsibility”, but stopped short of offering specifics on borrowing, taxation or spending cuts. Markets are unlikely to wait long for more detail on how the Autumn Budget will fit within increasingly tight fiscal constraints.
More telling than the bond market was GBP/EUR’s move below the tight 1.1650-1.17 range that has held since late July. The cross has been the clearest expression of domestic political concerns in the UK. A break lower puts 1.16 in focus as the next key support level.
We expect news flow around the fiscal outlook to build in the coming weeks as investors sharpen their focus on the 28 October Budget. For sterling, the balance of risks remains skewed to the downside.
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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.
