US Dollar: Jobs data to test hawkish Fed repricing - BNY

BNY‘s Geoff Yu highlights that recent U.S. inflation data left the macro narrative intact, but Fed Chair Kevin Warsh’s Jackson Hole speech pushed markets to reprice September hike odds and lifted the Dollar. The focus now shifts to U.S. JOLTS, ISM surveys and especially nonfarm payrolls, which will test whether the hawkish repricing and benign U.S. growth story can be sustained.

Fed repricing hinges on payrolls

“Last week‘s U.S. inflation data did little to upset the macro narrative, with core PCE landing broadly in line, but Fed Chair Kevin Warsh’s Jackson Hole speech was the clear market mover.”

“His more hawkish tone drove the market to reprice the probability of a September hike from roughly one-in-three to greater than 50/50, and nearly one and a half cumulative hikes by year end. The curve flattened, and the dollar rose.”

“This week looks materially busier on the data front. In the U.S., JOLTS lands Tuesday, followed by ISM Manufacturing and Services on Tuesday and Thursday respectively, with both expected to remain in expansionary territory.”

“But the main event is Friday‘s nonfarm payrolls (NFP) report, where consensus looks for a rebound to 58,000 after last month’s surprisingly weak -23,000 print.”

“NFP is the key release for rates, FX, and risk assets. After last month‘s soft employment print, another weak number could temper the hawkish repricing that followed Jackson Hole. Conversely, a firmer print would validate Warsh’s message that the Feds focus should be on the inflation side of the mandate.”