USD is determined by jobs data – Scotiabank

Friday’s US NFP data served to cloud the Fed’s policy outlook rather than definitively resolve it, notes Shaun Osborne, chief FX strategist at Scotiabank.

USD broadly higher after NFP report

“The data showed slightly lower-than-forecast job growth and the expected decline in the unemployment rate, but also reflected significant downward revisions to the wage data over the past two months. The downward revision was the initial tipping point for the markets, sending the USD lower before it quickly settled. A little later, headlines covering Fed Governor Waller’s comments singled him out in favor of “forward” rate cuts, pushing the USD lower again.”

A broader reading of the remarks showed that Waller was, in fact, suggesting “careful” rate cuts starting in September. The equivocal data plus Waller’s comments led markets to cut expectations for the September Fed somewhat, while fractionally extending bets on total easing through the end of the year. The USD is generally trading firmer today as markets cut back on some of the extra year-end easing trades they priced in.”

“However, the broader downward trend in US interest rates and the erosion of US term yield spreads will likely prevent a significant USD recovery for the time being. There are no top US data reports today; Wednesday’s CPI and Thursday’s PPI are the main risk items on the calendar for US markets this week.”