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The US dollar remains strong, will non-farm data be a turning point?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The US dollar will remain strong, will non-farm data be a turning point?". Hope it will be helpful to you! The original content is as follows:
The US non-farm employment data in July will be released soon, and the market is highly concerned about its impact on the middle section of the interest rate curve (2-7 years). Against the backdrop of the Federal Reserve keeping interest rates unchanged and Chairman Powell sending hawkish signals, if the non-farm data is significantly lower than expected, it may trigger bets on early interest rate cuts, aggravating mid-term interest rate fluctuations. Meanwhile, input inflation pressures and strong GDP data make the policy outlook more xm-forex.complicated. The US dollar remains strong, the foreign exchange market is sensitive to employment data, the euro is relatively resistant to earthquakes, and the pound may amplify with US debt fluctuations. Overall, non-farm reports will become a key trigger point for market revaluation of interest rate paths and asset allocation.
Non-agricultural data is approaching, and the "middle section of the curve" has become the new focus of the market
The July US non-agricultural employment report, which will be released on Friday, has become a key event in the global financial market. Although the Fed kept the benchmark interest rate unchanged this week, the impact of employment data on interest rate paths is still significant, especially in the context of current economic growth being resilient and inflation risks not yet xm-forex.completely subsided. The market generally expects that non-agricultural jobs will be 110,000 in July, down from 147,000 in June, and the unemployment rate may rise to 4.2%. If the data fails unexpectedly, it may trigger the market's bet on the Fed's early turn to looseness, especially to have a significant impact on the middle section of the interest rate curve (2-7 years).
The interest rate market's attention to this range is rising. If the new jobs are less than 100,000 and the unemployment rate rises to more than 4.3%, the market may fluctuate significantly due to expectations adjustments. xm-forex.compared with short-term interest rates, which are still anchored by inflation expectations and long-term interest rates are subject to fiscal deficit pressure, the flexibility in the middle and sensitivity to macro signals make it the main battlefield for traders to adjust positions and trade strategies.
The Federal Reserve's stability maintenance policy remains unchanged, and hawkish signals weaken expectations of interest rate cuts
Although internal xm-forex.committee members support interest rate cuts, Fed Chairman Powell insisted on a hawkish stance at the policy press conference, emphasizing that the current inflation level is higher than the 2% target and the labor market is still tight, so the rationality of a high-interest rate policy is maintained. He said that risks still need to be flexibly responded to in the future, and this statement further suppressed the market's expectations for a rate cut in September. CMEFedWatch data shows that the probability of a rate cut in September has dropped from nearly 60% before the meeting to about 43%.
This position makes market pricing more dependent on actual economic data performance, especially employment and wage growth. If the non-farm data continues to be moderate, the Federal Reserve may be able to maintain a wait-and-see situation; but if the employment market deteriorates significantly, it may force it to adjust its policy rhythm. It is worth noting that the initial value of US GDP in the second quarter recorded an annualized growth of 3%, far higher than the market expectations of 2.4%, indicating that the economic fundamentals are not weak and provide some support for the Federal Reserve to maintain hawks.
The shadow of inflation has not yet subsided, and policy games have intensified market volatility
Recently, Trump announced high tariffs on Brazilian copper products and their derivatives, causing market concerns about a new round of imported inflation. xm-forex.combined with previous upward pressure on labor costs, the Fed's policy trade-off between anti-inflation and supporting growth has become more xm-forex.complex. Under this background, short-term interest rates are difficult to adjust quickly, and the front-end interest rate range is relatively stable. However, long-term interest rates need to face pressure from expanding fiscal deficits and adjusting global demand structure, so changes in curve patterns may be mainly concentrated in the middle area.
In addition, although job vacancies in the United States dropped to 7.43 million in June, indicating a cooler demand for employment, it is still above the historical average, indicating that the overall job market is still resilient. At the same time, the ADP report added 104,000 new jobs in the private sector in July, significantly higher than the 23,000 in June, confirming that the willingness of enterprises to employ workers still exists. These factors, together with wage growth expectations, form the core of uncertainty in interest rate expectations.
The dollar continues strongly, and the foreign exchange market remains highly sensitive
As the hawkish stance of the Federal Reserve further strengthens and the US economic data is stable, the dollar continues to rise since July. The euro/dollar exchange rate has fallen to 1.1400, a low of more than a month. Analysts pointed out that if non-farm data continues to be strong and the US dollar may rise further, the euro-dollar may test the low of 1.1340 or even 1.1280. If the data is neutral, the US dollar may maintain a high fluctuation; and if the data is less than expected, the US dollar may face a technical pullback in the short term;
It is worth noting that the linkage between the euro zone interest rate market on US bond yields has declined, especially the short-term end is almost "decoupled", indicating that even if non-agricultural data triggers violent fluctuations in US bonds, its impact on the euro zone is relatively limited. In contrast, the pound is still highly correlated with U.S. bond volatility, especially the 10-year U.S. bond yield is more sensitive to changes in U.S. interest rate changes for the same term. If non-agricultural data triggers medium- and long-term interest rate adjustments, the linkage reaction of the British bond market is worth paying attention to.
The above content is all about "[XM Foreign Exchange Decision Analysis]: If the US dollar remains strong, will non-farm data be a turning point?", it was carefully xm-forex.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!
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