USD: Bearish signals mount – ING

The US revised down the Nonfarm Payrolls (NFP) data for the 12 months to March 2024 by 818k yesterday. The market reaction was tainted by a delay in the release and probably some leaks about the figure but the message is clear: the jobs market is softening from a weaker position than previously thought. If that wasn’t enough of a USD-bearish argument yesterday, the FOMC minutes from the July meeting sent dovish signals, ING’s FX strategist Francesco Pesole notes.

A move in September as appropriate

“Market pricing for September is at 34bp, still signalling some reticence to price in a 50bp move at the next meeting before tomorrow’s Jackson Hole speech by Federal Reserve Chair Jerome Powell. However, the reasoning behind a 50bp September cut was that the Fed would “make up” for missing out on easing in July, and yesterday’s minutes all but endorsed that.”

“Today’s price action will be influenced by S&P Global PMIs across some developed countries. These PMIs aren’t as highly regarded as the ISM surveys in the US but have the benefit of comparability with the European ones, and markets have been on high alert for activity signals also coming from tier-two data in the US.”

“The ‘hard reset’ in speculative positioning of the past few weeks has placed the FX market in the condition to take on new structural positions. We think the prospect of Fed easing means USD shorts will continue to prevail. Measures of trade-weighted USD are around 1% above the December lows. The way markets are trading Fed easing is similar to that in December and we see no reason to call for an inversion of the dollar bear trend for now.”

(This story was corrected on August 22 at 09:45 GMT to say, in the first paragraph, that the revision of Nonfarm Payrolls was for the data in the 12 months to March 2024, not the first quarter.)