USD: Too early to say we've reached 'peak bearishness' on the USD – ING

While forecasters are overwhelmingly bearish on the dollar now – and some are bearish on a multi-quarter basis too – one possible shoe still to drop is the possibility of early Fed rate cuts, ING's FX analyst Francesco Pesole notes.

DXY to continue finding support in the 96.35/50 area

"Today's US jobs data will have a major say in that story. Chair Powell, leading the camp for the Fed to keep rates on hold, argues that sticky inflation and a solid labour market mean that the policy rate should be kept mildly restrictive at 4.25-4.50% for the time being. Clearly, any downside surprise in the jobs report would weaken his position and allow the market to push on with pricing a rate cut at the July meeting. Currently, the market attaches a 26% probability to that outcome."

"In terms of the jobs report, consensus expects a +106k number. The Bloomberg 'Whisper' number is now at +97k and has been edging lower, especially after yesterday's ADP private sector payrolls release saw the first decline in payrolls since March 2023. On the unemployment rate, jobs growth failing to keep pace with the labour force expansion is expected to see the unemployment rate nudge up to 4.3% from 4.2% – still very low. For reference, USD/JPY quickly fell 0.5% intra-day on the negative ADP release."

"Barring a negative NFP release today or a big rise in the unemployment rate, we'd expect the dollar to continue consolidating ahead of tomorrow's 4 July US public holiday. The dollar does face further threats next week, however, when the 9 July deadline for trade deals passes and President Trump could start threatening 50% tariffs again for recalcitrant trading partners. Expect DXY to continue finding support in the 96.35/50 area, and we slightly favour consolidation over a long weekend. Any big miss in NFP could trigger sub-96 levels, however."