Yesterday I argued that the dollar may have reached a bottom and that further weakness is not justified. Looking at the FX market this morning, it seems that the dollar’s bounce back is not for today as the greenback consolidated against most of its peers, unable to extend the modest gains of the last few days. There are several reasons for that. Beside expectations that the Fed will have to back-pedal on tightening and balance sheet unwinding amid stalling economic growth and the arrival of the ECB on the tightening side, the biggest strain on the dollar these days is Donald Trump.
The US President has had quite a negative effect on the dollar since he took office. Its inability to carry out reforms and the political uncertainty, both at the international and national levels, generated by its management style have made investors doubtful its presidency will support the US economy and, by extension, the greenback.
The July jobs report will be the main attraction of the day. Non-farm payrolls are expected to increase 180,000 in July, down from 222,000 in the previous month. Economists surveyed anticipate the unemployment rate to have edged down from 4.4% to 4.3%. Finally, wage growth is expected to have slowdown, with average hourly earnings growing 2.4%y/y versus 2.5% a month ago. However, on a month-over-month basis, wages should have grew 0.3% compared to 0.2% in July.
Overall, investors seem to have become less sensitive to news from the job market. Therefore, there is little chance it’ll move the substantially the US dollar today. However, given the overall negative dollar environment, disappointing data will likely affect more the USD than good ones.
By Arnaud Masset