Win Thin, Global Head of Currency Strategy at BBH, offers a brief overview of the US dollar price action on Friday and the closely-watched US monthly jobs data. The popularly known NFP report would play a key role in influencing the near-term USD price dynamics amid the recent hawkish remarks by several Fed officials.

Key Quotes:

“DXY has risen three of the past four days and is trading near 106 currently. We maintain our strong dollar call as Fed officials are making it clear that markets misread the Fed’s commitment to lowering inflation.  The greenback is also getting more traction as data came in stronger than expected.  Today’s jobs data will likely be key for the medium-term dollar outlook.”

“Consensus sees 250k jobs added vs. 372k in June, while the unemployment rate is expected to remain steady at 3.6% and average hourly earnings are seen falling two ticks to 4.9% y/y.  Fed Chair Powell stressed labor market strength many times in his post-decision press conference, which supports our view that the Fed is not about to pivot while the economy remains at full employment.  June consumer credit will be also reported and is expected at $27.0 bln vs. $22.347 bln in May.”

“WIRP suggests a 50 bp hike September 21 is fully priced in, with around 40% odds of a larger 75 bp move.  The swaps market is pricing in 100 bp of tightening over the next 6 months that sees the policy rate peak near 3.5%, followed by the start of an easing cycle over the subsequent six months.  The Fed has made it clear that this is not its expected rate path and so we look for a hawkish shift in market pricing in the coming days and weeks if the U.S. data cooperate.”

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