Bearish signals are mounting – ING

The US revised down non-farm payrolls (NFP) data for the 12 months to March 2024 by 818,000 yesterday. Market reaction was affected by a delay in the release and perhaps some leaks about the figure, but the message is clear: the labor market is softening from a weaker position than previously thought. If a bearish argument against the USD wasn’t enough yesterday, the FOMC minutes from the July meeting sent conciliatory signals, notes Francesco Pesole, FX strategist at ING.

A move in September, if necessary

“The market price for September is 34bps, still signaling some reluctance to price in a 50bps move next meeting ahead of Federal Reserve Chairman Jerome Powell’s Jackson Hole speech tomorrow. However, the reasoning behind a 50 basis point cut in September was that the Fed would ‘make up’ for missing out on easing in July, and yesterday’s minutes almost backed that up.’

“Today’s price action will be influenced by the S&P Global PMI in some developed countries. These PMIs are not as highly regarded as US ISM surveys, but they have the advantage of comparability with European ones, and markets have been on high alert for signals of activity coming from US level two data as well.”

“The complete reset of speculative positioning in recent weeks has put the currency market in a position to take new structural positions. We think the prospect of Fed easing means USD shorts will continue to prevail. Trade-weighted USD measures are about 1% above December lows. The way markets are trading Fed easing is similar to December and we see no reason to call for a bearish dollar reversal for now.”

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