U.S. Dollar Index Overview

The USD was the most strongest currency yesterday, supported by rising US yields and softer import/export data. And whilst the prices paid component of the ISM services PMI softened to a 20-month of 68.8, it remains historically high relative to its long-term average of 59.8- which suggests the aggressive Fed tightening is yet to make an impact on the inflationary forces of the robust services sector.

The main economic event for the dollar this week is tomorrow’s NFP report. There was some excitement that it may come in soft due to the notable fall in job openings, but ADP employment came in slight above expectations at 280k yesterday. But it is all to easy to get caught in the noise of individual data prints, so best to take a wider broader view of underlying trends. The fact is that ADP employment topped in August 2021 and NFP topped in February, meaning both are trending lower. And whilst unemployment remains just above its 2.5 year lows. And whilst unemployment remains just above its 2.5 year lows, it did tick higher in August- so another print higher tomorrow suggests the early stages of a rising trend.

NFP is expected to print 250k jobs, down from 308 which would place it at its slowest pace since March 2021. And if there are further signs of weakness in the labor market then it could be taken as a bearish sign for the dollar and yields, so if we want to see the dollar rally from here then a stronger than expected report would certainly help. But it should also be remembered that the dollar remains within a strong uptrend and has had a fairly decent pullback, so it may not take an overly stop NFP report to help it higher either.