MUFG’s Derek Halpenny notes that weaker US jobs data have not triggered a strong reaction in Dollar or rates, as markets await key Consumer Price Index (CPI) releases and another Nonfarm Payrolls (NFP) before the September Federal Open Market Committee (FOMC). Halpenny highlights softer wage growth back to pre-Covid levels, reduced inflation pressures from the labour market, and the impact of recent hawkish FOMC communications on sustaining Dollar pricing.

Dollar reacts cautiously to weak jobs

“Friday’s negative NFP print is likely to influence FX sentiment in the early part of the week, at least through to the CPI release on Wednesday – the key macro release of the week.”

“That makes a lot of sense with the two CPI reports and another NFP report before the next FOMC meeting on 16th September meaning market participants were cautious about removing too much of the pricing for a hike at that meeting – the probability of a hike has still dropped from 55% to 40%.”

“Still, the YoY rate for average hourly earnings fell from 3.5% to 3.2%, confirming the full retracement back to pre-covid levels and certainly underlining the lack of inflationary pressures coming from the labour market.”

“Let’s see what the CPI data bring on Wednesday but another weaker than expected core CPI print (which would be the third month in a row) along with last week’s weaker jobs would certainly provide compelling ammunition for the doves on the FOMC although again we may not get a big market reaction this week either given the September data points lie ahead before the FOMC meeting.”