Weak Jobs Data Keeps Dollar on the Back Foot.

  • US ADP shock: Payrolls fell -32k in September, deepening USD downside risk.

  • Fed repricing: Markets now price in 47bp of December easing.

  • EUR steady: Inflation data matched forecasts, keeping ECB doves sidelined.

  • GBP risk premium: Markets starting to price UK budget risks into sterling.

  • FX preference: JPY remains the cleaner hedge than EUR against US vulnerabilities.

USD: ADP payrolls disappoint
With the US government shutdown stalling official data releases, markets paid closer attention to ADP figures yesterday – and the outcome was grim. September payrolls fell by -32k, while August was revised from +51k to -3k. This triggered a 4bp dovish repricing in December Fed funds futures, with expectations of 47bp in cuts now priced in.

The weak print could have a longer aftershock, especially with the payrolls release in doubt and limited fresh data to steer FX. We still favour USD/JPY downside, particularly as EUR runs into more resistance. Our fair-value model shows EUR/USD broadly in line, while USD/JPY remains 1% overvalued. So far, falling rates and equities have driven USD/JPY lower, but haven flows into JPY could add further pressure once the risk premium compresses.

The dollar found some support from the Supreme Court’s move to delay Trump’s attempt to remove Fed Governor Lisa Cook, with hearings now set for January. The ruling had only a modest market impact but does reinforce Fed independence compared to other institutions.

With jobless claims off the calendar, today’s Challenger job cuts may punch above their weight. Overall, USD still looks vulnerable, though selling may become more selective in the absence of fresh catalysts.

EUR: Inflation steady, doves sidelined
Eurozone inflation edged higher yesterday, with headline CPI at 2.2% and core stuck at 2.3% for the fifth straight month. Energy was the main driver, but the data landed exactly in line with expectations. As ING’s Bert Colijn notes, there’s little cause for concern.

Still, the print supports the ECB’s cautious stance and should help keep dovish voices muted – not that there has been much public dissent recently.

Price action in EUR/USD hinted at fatigue yesterday, with limited upside momentum absent new drivers. For now, the yen looks the more attractive hedge for US risks. EUR/USD risks are tilted upward, but a move beyond 1.180 will likely need fresh data impulses.

GBP: Budget risks creeping in
EUR/GBP dipped yesterday as EUR longs were squeezed, but downside momentum seems weak, with 0.860 proving difficult to reclaim. Our valuation model has shown EUR/GBP around 1% overvalued for two straight weeks, suggesting the market may be starting to build in some GBP risk premium ahead of November’s budget. Media leaks are expected to drip out before the official announcement on the 26th.

Into year-end, risks still point higher for EUR/GBP, particularly with our economists expecting a BoE rate cut this quarter – a move only partly priced at 6bp.

The UK calendar has been subdued this week, with speeches from both hawkish and dovish MPC members (Mann and Ramsden). Governor Bailey is up tomorrow, but with no fresh data, off-meeting commentary is unlikely to move the needle.

*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.