In yesterday’s update, we pointed to the importance of the JOLTS data release and what it meant for US wage pressure. As our US economist, James Knightley, points out in his review, signs of cooling in the US labor market can best be described as ‘subtle’. So there were further signals of the US labor market moving towards better balance, but it is slow progress. The release saw US two-year yields edge three to four bps lower, but that still left the market looking for just 68bp of Fed easing this year – ie less than the three rate cuts in the median Fed dot plot. The near-term trend in the dollar will therefore be driven by whether the data narrows Fed 2024 pricing to just two rate cuts – or whether some softness in activity or prices re-inserts 75bp as the minimum number of rate cuts expected this year.
In terms of that data calendar and ahead of Friday’s nonfarm jobs release, today sees the widely discredited ADP jobs release (consensus 150k) and then the ISM Services release where investors will be focusing on overall confidence, prices paid and the employment component. Consensus is looking for modest improvements across the board here, which if delivered could prove mildly dollar-supportive.
Yet before investors position for the next leg higher in the dollar, there are a few amber warning signals. March US vehicle sales came in on the soft side yesterday and point to a soft retail sales figure for March. And today the share prices of electric vehicle makers are under pressure around the world after a big miss for Tesla deliveries in the first quarter. We also note that precious metals (gold and silver) continue to tear higher. This normally is associated with a weaker dollar, although currently may be more of a function of central bank buying – touching on the de-dollarisation theme.
We have certainly not abandoned our call for a weaker dollar trend starting this quarter, but let’s see how the US data plays out over the coming weeks. For DXY, maybe it is that 105 is proving some decent psychological resistance, but a close below 104.40 is required to slow/reverse what is undoubtedly a bullish near-term trend for the dollar.
Chris Turner
Tags: Daily Dollar crossroads articles
