US Dollar: Services slowdown and labor signals – TD Securities

TD Securities strategists expect the ISM Services index to retreat in June after May’s gain, pointing to broad-based slowing in US activity and new orders while employment remains in contraction. They note softer June Payrolls, with leisure and hospitality jobs hit by seasonal factors and the unemployment rate falling on lower participation. Weaker data have challenged recent long Dollar positioning and reduced pricing for 2026 Federal Reserve hikes.

Services cooling and jobs softening

"We look for the ISM services index to partly give back May's ~1pt gain, dropping to 54.0 in June (cons: 54.2). We anticipate broad-based slowing, with activity and new orders explaining most of the cooling while employment likely stayed in contraction territory."

"Prices paid are expected to fall as well, as the index moved persistently higher along the March-May surge in energy prices."

"Payrolls softer than expected, led by weak leisure & hospitality jobs driven lower by seasonal adjustments."

"Job gains appear on the path back to breakeven.UE rate declined to 4.2% due to lower participation."

"Still-stable labor market will keep Fed's focus on inflation. Pricing for 2026 hikes declined, pushing yields lower. The recent buildup in long USD positioning is challenged by weaker data."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)