Dollar softer ahead of US jobs data
The main currency pairs largely treaded water yesterday amid a mixed bag of economic data, though both US bonds and equities finished the day strongly. The euro and sterling are edging a little higher against the dollar this morning, ahead of the key employment report in the US later today, trading at around $1.1670 and $1.3460 respectively, with EURGBP little changed from yesterday morning’s levels at about £0.8670. According to the consensus forecast for today’s employment report, the US economy is expected to have added 75k jobs in August, much the same as in July, with the unemployment rate nudging up to 4.3% from 4.2% in July. An outturn along these lines or weaker would reinforce market expectations for a Fed rate cut later this month (17th) and could see the dollar lose ground, although any gains for the euro against the US currency may be limited ahead of the French government’s confidence vote in Parliament on Monday. A stronger than expected report, with job gains of over 100k say, might see the market cast some doubt on a Fed rate cut and the dollar strengthen.
Government bond yields headed further south yesterday. Benchmark US 10-year bonds rallied strongly into the close with yields ending down around 7bps at 4.16%, their lowest level since early April, while 2-year yields fell by around 3bps to 3.59%, a new low in 2025 to date. Elsewhere in bond markets, German and UK yields were about 1-3bps lower on the day. Meanwhile, equity markets advanced again, with European stocks gaining around 0.5% and the main US indices adding between 0.8% and 1%, the S&P 500 closing at a new record high in the process.
Ahead of today’s jobs data, yesterday’s ADP employment report in the US showed private sector employment increased by 54k in August, slightly less than the 68k increase expected. Jobs growth over the June-August period averaged 46k a month, down from 79k a month in March-May and well below the 149k a month increase over the three months to February. Separately, the ISM index of services activity was firmer than expected in August, rising to 52.0 from 50.1 in July led by a big jump in the new orders component (to 56.0 from 50.3), with the latter all due to an increase in domestic orders as export orders contracted again last month.
Fed member Williams says the central bank is facing a “delicate balancing” act when it comes to employment and inflation risks – with “some of the concerns around employment a little higher” and those surrounding inflation “a little bit lower” – but believes that “it will become appropriate to move interest rates (down) toward a more neutral stance over time.”
Apart from the US jobs report, other data due today include updated estimates for Euro area GDP and employment in the second quarter of the year. The previous estimates showed quarterly GDP growth slowed to 0.1% from 0.6% in Q1, the latter boosted by a front-loading of exports to the US ahead of expected tariffs, while employment growth eased to 0.1% q-o-q from 0.2% in the first quarter.