USD steady, but lower yields weigh – Scotiabank

The USD is slightly weaker overall, but trends in G10 FX are relatively modest. Broader markets are relatively calm as market participants await Friday’s US jobs data, notes Shaun Osborne, chief FX strategist at Scotiabank.

USD mixed as markets hold ahead of Friday’s jobs data

“Equities are very mixed and major bond markets are little changed in the session. U.S. 10-year Treasury yields edged up marginally. But yields fell sharply yesterday after weak JOLTS data added to concerns that the US labor market is slowing, while the Beige Book noted flat or weaker activity in most Federal Reserve districts.”

“We have more data this morning in the form of the ADP data and the latest weekly claims numbers. ADP has proven to be a weak guide to NFP, but a weak report today is likely to increase market anxiety ahead of NFP. ISM Services data is available at 10 a.m. ET. Japan reported stronger-than-expected wage gains for July overnight; a 3.6% y/y rise in cash labor earnings was well ahead of forecasts, reinforcing expectations that the BoJ will follow through with another mild rate hike before the end of the year.”

“Lower US short rates (US2Y yields fell about 10bps in response to yesterday’s developments) will – if sustained – weigh on the USD in the near term and could help pull DXY lower overall towards the value estimate fair based on spread of 100.0. Near-term technicals are again tipping lower for the index that may have topped out on Tuesday as the dollar’s late August/early September rally fizzles. DXY support is 100.8 and — stronger — 100.5.”