All eyes on August NFPs

Despite the light data calendar, last week saw the start of a dollar turnaround, reversing some of last month’s grind lower for the greenback. Indeed, between August 1st and August 27th, the DXY index shed almost 3.5% – a notable move lower considering the relatively slow holiday conditions. That said, this also left the dollar looking cheap, especially with US GDP growth continuing to prove resilient. Other indicators, meanwhile, have broadly suggested that the early month downside payrolls surprise was an outlier and not the start of a more worrying economic slowdown, despite the initial market panic.

As such, the primary focus for markets is likely to remain on the US this week, with the dollar still front and centre as traders return from summer holidays. Elsewhere, a BoC rate decision is unlikely to hold too many surprises, while political risk is likely to be the key theme in Europe when considering the light data calendar. Set against this, August’s US jobs report is a standout event. Not only have a multitude of Fed speakers, including Chair Powell, shifted focus onto the employment side of the Fed’s mandate, but a print that matches expectations would help confirm that last month’s undershoot was a head fake. If realised, this should keep the dollar on track to continue reversing August’s losses. A second successive weak print, however, would likely see recession fears return to the fore, triggering another leg lower for the greenback.

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Authors: 

Nick Rees, Senior FX Market Analyst

María Marcos, FX Market Analyst

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