Too early for a sustained dollar turnaround

It has been hard to look past US labour market data this week, with all eyes on the unemployment side of the Fed’s dual mandate as the key dynamic underpinning the likely path for US rates. Even so, despite a whole raft of data prints, the sum total has hardly been conclusive. There are clear signs that the labour market has normalised, while some indicators are pointing to the possibility of a more troubling slowdown. In our view, however, downside risks look overstated at present. With this in mind, we continue to look for a succession of 25bp rate cuts from the Fed rather than anything more aggressive, an outcome that would leave the dollar looking cheap at current levels.

That said, next week is likely too early to see a turnaround in the greenback’s fortunes. US CPI data should be the focus, but this also looks set to be inconclusive for the Fed, a fact that is likely to keep the dollar treading water next week. The ECB however is likely to offer a dovish steer on the path for eurozone inflation while simultaneously cutting rates, while UK jobs data and LatAm CPI offer plenty of action outside the US next week.

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Authors: 

Nick Rees, Senior FX Market Analyst

María Marcos, FX Market Analyst

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