The outlook for the US dollar depends on inflation data for July after the Gangbuster Jobs report -by Ecork

USD Weekly Leverage: Medium Bullish

  • The US dollar is rising Ahead of the weekend after US labor market data surprises to the upside, helping to dispel recession fears
  • Strong job growth and higher wage pressures in the US economy are likely to prevent pivotal monetary policy by the Federal Reserve, creating a positive backdrop for the dollar.
  • US inflation data for July will steal the spotlight next week

Most Read: GBP/USD Weekly Forecast – The Bank of England predicts a recession and a crash for the British pound

After a soft end in July, the US dollar, as measured by the DXY index, rallied in the first week of August, up about 0.7% to 106.55, with most of the gains on Friday before the weekend coming right after the US. Employment data surprised the upsideremoving any hopes for a Federal Reserve pivot later this year.

For context, the US employers added 528,000 workers in Julymore than double the consensus estimate and the fastest pace of job growth since February, suggesting employment remains strong and recession fears may be exaggerated.

with the The job market is still shooting all cylindersWith no signs of widespread layoffs and wage pressures that have not moderated, the US central bank is likely to continue its course, aggressively raising borrowing costs in the coming months to cool demand and curb inflation. This situation may boost US Treasury yields as investors price in a Steeper hiking trail, higher rates for longer.

In the current environment, the The US dollar may remain supported And even gain more strength against lower-yielding currencies, such as the Japanese yen and the euro in the near term. However, there is one variable to consider that is likely to drive the dollar lower: consumer price data.

We’ll get a better picture of the inflation profile next week when the US Bureau of Labor Statistics releases publish Latest Consumer Price Index Results. According to a Bloomberg News poll, July CPI It rose 0.3% month over month, bringing the annual rate to 8.7% from 9.1% in June, a welcome directional improvement, but still a very high reading, more than four times the central bank’s 2% target.

In order for the markets to start discounting a Less severe FOMC tightening cycle and lower interest rateAnd the Inflation should beneficially decline. This may not happen yet in the July report despite the decline in energy costs since late June. Against this background, the basic outlook for DXY is moderately bullish for the upcoming week.

US Dollar (DXY) daily chart

DXY chart was created using TradingView

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— By Diego Coleman, Market Strategist, DailyFX

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