US Greenback Outlook Hinges on July Inflation Information after Gangbuster Jobs Report

US Greenback Outlook Hinges on July Inflation Information after Gangbuster Jobs Report

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US DOLLAR WEEKLY FORCAST: MIDLY BULLISH

  • The U.S. dollar rallies earlier than the weekend after U.S. labor market knowledge surprises to the upside, serving to dispel recession fears
  • Robust job progress is and excessive wage pressures within the U.S. economic system are more likely to forestall a financial coverage pivot by the Federal Reserve, making a constructive backdrop for the buck
  • July U.S. inflation knowledge will steal the highlight subsequent week

Most Learn: GBP/USD Weekly Forecast – BoE Expects a Recession, Sterling Breakdown

After a delicate finish in July, the U.S. greenback, measured by the DXY index, rallied within the first week of August, up about 0.7% to 106.55, with most beneficial properties approaching Friday simply earlier than the weekend after U.S. employment knowledge stunned to the upside, eradicating any hopes of a Fed pivot later this 12 months.

For context, the U.S. employers added 528,000 workers in July, greater than twice consensus estimates and the quickest tempo of job progress since February, signaling that hiring stays robust and that recession fears could also be overblown.

With the labor market nonetheless firing on all cylinders, no indicators of widespread layoffs and wage pressures failing to reasonable, the U.S. central financial institution is more likely to keep the course, elevating borrowing prices forcefully within the coming months to chill demand and curb inflation. This example could bolster U.S. Treasury yields as buyers worth in a steeper mountaineering path and higher-for-longer rates of interest.

Within the present atmosphere, the U.S. greenback could keep supported and even acquire extra floor in opposition to low-yielding currencies, such because the Japanese yen and euro within the close to time period. Nonetheless, there’s one variable to needless to say may probably deliver the buck down: client worth knowledge.

We’ll get a greater image of the inflation profile subsequent week when the U.S. Bureau of Labor Statistics publishes the newest client worth index outcomes. Based on a Bloomberg Information survey, July CPI rose 0.3% m-o-m, bringing the annual price to eight.7% from 9.1% in June, a welcome directional enchancment, however nonetheless an especially excessive studying, greater than 4 instances above the central financial institution’s 2% goal.

For markets to start out discounting a much less aggressive FOMC tightening cycle and decrease terminal price, inflation would want to come back down meaningfully. This may occasionally not occur but within the July report regardless of falling power prices since late June. In opposition to this backdrop, the elemental forecast for the DXY index is mildly bullish for the week forward.

US DOLLAR (DXY) DAILY CHART

DXY Chart Prepared Using TradingView

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—Written by Diego Colman, Market Strategist for DailyFX





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