The US Dollar remained under pressure against the Euro and Pound Sterling following weak US jobs and wage data, with the DXY now approaching its closely watched 200-day moving average ahead of Wednesday’s crucial inflation release.
US Dollar Under Pressure and Awaiting Key Technical Test
Soft wage growth and weak jobs numbers are weighing on the US dollar.
The odds of a Fed rate hike in September have eased and are currently 50/50.
This week’s inflation data in the US will shift those odds one way or another and lead to US dollar volatility.
The US dollar basket is currently trading around 0.5% form a key technical level at the daily 200SMA.
Many markets are flat in early Monday trading after a quiet weekend for news. The German DAX is unchanged from Friday, as are S&P500 stock futures, and currency pairs such as EURUSD and GBPUSD.
Attention stayed on the Middle East conflict over the weekend. Iran said a deal with Oman to define new shipping lanes was in its final stages yet insisted the waterway would fully reopen only after the United States met a list of conditions that include ending the naval blockade of Iranian ports, lifting sanctions, releasing frozen assets, and providing compensation. Shipping through the strait has stayed at a trickle.
Iran-backed Houthi forces also claimed attacks that added to supply concerns. President Trump commented on the situation on Sunday. “We are low-keying it,” he said. “We are only semi-negotiating with them. We are just watching Iran with its huge inflation and the fact they have no money.” The remarks point to continued reliance on economic pressure rather than an immediate escalation of military action.
Oil prices responded to the mixed signals. Brent crude rose slightly to the mid-$84 area after ending Friday near $83.55, while West Texas Intermediate moved above $78. The gains reverse some of the previous week’s decline that had been driven by hopes of a quicker reopening.
Mixed Data, Bullish Stocks
Markets may well still be pondering a mixed US Jobs Report from Friday, which posed as many questions as answers. The headline figure was negative, and downwards revisions to previous data were another sign of weakness. However, stocks rallied and the S&P 500 closed Friday at a record high, with the Nasdaq also advancing as rate-hike fears eased. The Fed is less likely to hike into a weak labour market.
There was also good news on the inflation side as wage growth came in soft at only 0.1% when 0.3% was expected. This is important as it suggests the energy spike and elevated inflation are not leading to higher wage demands. If wage growth was hot, there could be a dangerous wage-price spiral that could send inflation soaring like 2021-2022.
On the currency side, the softer payrolls numbers initially pushed the dollar lower. EURUSD moved up toward 1.1567 and GBPUSD toward 1.3499 on Friday. Into the new week the dollar recovered modestly from those levels. The overall tone remains one of reduced near-term Fed tightening pressure balanced against ongoing geopolitical risks that keep oil elevated and inflation concerns alive.
Inflation Data Incoming
This week’s main event will be Wednesday’s CPI release. The odds for September hike currently sit at near 50/50, and that would shift either way depending on whether the data comes in hot or cold.
Inflation data has been volatile since the Middle East conflict started, but it’s fair to say the data has not been as bad as feared. The numbers for July are expected to come in soft, with headline MoM estimated at 0.1% (helped by lower oil prices) and core at 0.2%. That could be good news for stocks and weigh on the US dollar as it would take the pressure off the Fed to hike in September.
The US dollar basket (DXY) is currently trading just below 100 and has good support at 99.2 at the daily 200SMA. A soft CPI would likely give that level a good test.
Our currency coverage draws on live market data, official economic releases and published bank research.
