USD Holds Strong While Global Markets Face Economic Uncertainty.

USD: The US Dollar (USD) remains resilient against its major competitors as the week kicks off, with investors holding back from making significant moves ahead of key events like the US inflation data and the European Central Bank’s (ECB) monetary policy announcement. On Monday’s economic calendar, the Eurozone’s Sentix Investor Confidence and the US’s July Consumer Credit Change are highlighted. After bearish pressure on Friday from the August US employment data, the USD Index saw gains driven by risk aversion, ending the week in positive territory. Wall Street suffered sharp declines, with the Nasdaq Composite falling by 2.7%. Early Monday, the USD Index is moving toward 101.50, and US stock index futures are up between 0.4% and 0.6%. In August, the US Bureau of Labor Statistics reported a rise of 142,000 in Nonfarm Payrolls, falling short of the 160,000 expected. July’s increase was also revised down from 114,000 to 89,000. Despite these numbers, unemployment dropped to 4.2%, and annual wage inflation rose to 3.8%. The EUR/USD hit a weekly high above 1.1150 on Friday but closed below 1.1100, and by Monday morning, the pair is falling toward 1.1050. GBP/USD is slightly below 1.3100 early Monday after a flat finish last week. The UK’s labor market data is due on Tuesday. Meanwhile, USD/JPY dipped for four days straight, hitting a one-month low below 142.00 on Friday but has rebounded above 143.00 as the new week begins. A Japanese official noted that domestic inflation remains weak when external factors are excluded.

EUR: In the Eurozone and EU, GDP grew by 0.2% quarter-on-quarter from April to June, a slight downgrade from initial estimates of 0.3%, based on Eurostat’s final reading on Friday. This is down from 0.3% growth in Q1. Poland saw the highest GDP growth in Q2, up 1.5%, followed by Greece (up 1.1%) and the Netherlands (up 1.0%). On the downside, GDP shrank in Ireland (-1.0%), Latvia (-0.9%), and Austria (-0.4%). Government spending increased by 0.6%, while household consumption fell by 0.1%, and investment dropped by 2.2%. On an annual basis, GDP growth held at 0.6% in the euro area and 0.8% in the EU for Q2 2023. The euro area, or EA19, refers to countries using the euro, while the EU27 includes all member states.

GBP: The GBP/USD pair saw some dip-buying during the Asian session on Monday, climbing back toward the mid-1.3100s, but a mix of factors may limit further gains. Friday’s US employment data pointed to a slowing labor market, which raised concerns about the US economy and helped the safe-haven USD. Meanwhile, a UK recruiter survey revealed a cooling labor market, with job placements dropping sharply and wage growth slowing. This could strengthen the argument for the Bank of England (BoE) to consider interest rate cuts, potentially limiting the GBP/USD’s upside. Investors are now looking ahead to Tuesday’s UK jobs data, with USD dynamics expected to continue driving the pair in the absence of major economic updates from either the UK or the US on Monday.