US Dollar Price Forecast: Weak ADP Hits DXY as NFP Becomes the Next Test; Key Levels for EUR/USD and GBP/USD Today
US Dollar News: Soft ADP Data Tests Fed Hike Conviction
The greenback has begun the month with its momentum challenged by the more recent labor data. The August ADP report was 38,000 compared to the 48,000 report that economists expected, and also showed a loss of jobs in manufacturing as well as professional and business services. The report supports signs of cooling hiring, and was lower for Treasury yields. Even with the reports, futures still hint at a 60%–65% likelihood of a rate hike in September by the Fed. Fed Chair Kevin Warsh also kept a hawkish stance at Jackson Hole with his speech, keeping expectations of a rate hike high. Friday’s employment data will be the last big report with the potential to change expectations, and a weak report will drop the likelihood of a rate hike.
The euro still supports a firm policy with eurozone inflation reaching 3.3% in August from July’s 2.9%. This increase was largely due to the Iran conflict and the resulting energy costs. The markets have priced in the expected 25 basis point increase with the deposit rate most likely to reach 2.50% for this hike. With core inflation reaching 2.4%, a more cautious slow pace of tightening is expected, rather than a prolonged hiking period.
Sterling is facing the harder of the two domestics. Gilt yields for the ten year have reached their highest level since 2007 at 5.294% with energy costs, inflation, and fiscal concerns and spending all reaching a high prior to the October budget. The BoE is still expected to hold Bank Rate at 3.75% in September, but a 25 basis point hike is expected in the coming year at later dates.
The movement of the FX theme for September 3 is expected to be data-dependent. Soft U.S. hiring diminishes the conviction of the Fed Funds rate hike, and the ECB retains the most compelling case for forward tightening. In the meantime, fiscal stress is holding back GBP, despite higher than desired inflation.
For September 3, the FX theme appears to be increasingly data dependent. Soft U.S. hiring diminishes the conviction of the Fed Funds rate hike, and the ECB maintains the most persuasive case for front-running tightening.
U.S. Dollar Index Technical Analysis: DXY Breaks Rising Structure as 99.12 Support Comes Into Focus
The U.S. Dollar Indexis currently trading at 99.23 on the 2-hour chart after dropping below the recovering channel from the August lows. What is interesting is how quickly the index was rejected at the 99.80 – 99.86 range. DXY lost 99.62, 99.48, and 99.35 very quickly, which shows how much the structure of the bullish recovery has weakened.
