Markets Brace for Key Jobs Data: Dollar on Shaky Ground.

  • The dollar has softened as focus shifts from bond moves back to labour market data.

  • US JOLTS showed job openings falling and layoffs rising, with ADP payrolls now in sharper focus.

  • ADP data carries weight after revisions and Fed commentary, with markets eyeing a slowdown to 68k.

  • EUR/USD looks undervalued versus rate differentials, with moderate upside expected into Q4.

  • Sterling rebounded, but Budget-related risks and eventual BoE cuts should cap upside.

USD: Spotlight on ADP payrolls
We suggested yesterday that weakness in long-dated global bonds would not be enough to keep the dollar supported. That view has held up, with the greenback giving back part of its recent gains as attention shifts back toward economic releases.

The latest JOLTS survey confirmed further cracks in the labour market. Job openings slipped more than forecast to 7.2 million, but it was the rise in layoffs to 1.8 million that stood out. A subdued quit rate continues to imply easing wage pressures.

All eyes now turn to ADP payrolls, which matter more than usual for two reasons. First, after recent revisions, ADP appears to have regained some credibility in anticipating official payroll numbers. Second, Fed hawk – and potential Chair successor – Christopher Waller highlighted ADP’s weekly data as pointing to further weakness. Consensus is for a slowdown from 104k to 68k.

Markets may struggle to reconcile ADP weakness with any payrolls upside surprise, which could cast doubt on the reliability of the latter. While a sharp dovish shift in Fed expectations likely won’t happen until CPI lands on 11 September, the dollar still looks rich compared to short-term yields, leaving space for further softness into tomorrow’s jobs data.

EUR: Room for gains
We still see EUR/USD moving back above 1.170. Unless US labour data collapses, the Fed repricing may stay contained, but rate spreads already suggest the euro is undervalued.

Our economists preview next week’s ECB meeting: a hold is the base case, but we think markets underestimate the odds of another rate cut later this year. Combined with our dovish Fed outlook and the larger space for USD repricing relative to EUR, we remain moderately constructive on EUR/USD in the months ahead.

GBP: Rebound holds, but risks linger
Sterling has recovered in line with our expectations as gilts corrected after Tuesday’s global bond-driven selloff.

BoE Governor Andrew Bailey reiterated the MPC’s cautious stance, with markets now pricing minimal chance of a November cut but slightly higher odds of easing in December (13bp). That’s because the 26 November Autumn Budget may deliver tax rises that dampen growth and inflation, nudging the MPC back toward dovishness.

We still expect the BoE to cut before year-end. While sterling’s slump yesterday looked overdone, uncertainty around the Budget will likely fuel volatility, with downside risks for gilts and GBP. Even if near-term moves are limited, EUR/GBP is more likely to gravitate above 0.870 than below 0.860 as November approaches.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.