Unemployment is anticipated to tick higher to 4.3% from 4.2% (note that the Fed’s latest projection by the end of 2025 is 4.5%), while wage growth is projected to remain unchanged at 3.9% year-on-year (YY), and ease slightly to 0.3% from 0.4% month-on-month (MM).

While still not ‘falling off a cliff’, the US jobs market is evidently cooling, but it is not soft enough for the Fed to release the brakes and ease policy at this point. However, should US employment come in lower than expected this week, we can expect markets to price in further Fed easing, I believe, which will likely fuel downside in the US dollar (USD).

The Greenback concluded the week at multi-year lows, down 1.5%, with month-to-date losses on track to register 2.2%. As you can see from the technical charts below, the USD Index made short work of support from 99.67 on the monthly scale (marked resistance) and demonstrates scope for further underperformance towards channel support, extended from the low of 72.97, followed closely by an AB=CD support at 94.96. Adding to this bearish vibe, support was recently consumed on the daily scale at 97.72 (marked resistance), potentially paving the way for further downside to as far south as support from 95.67. This level resides near the monthly channel support and the AB=CD support. Therefore, 97.72 will be a level I will be monitoring closely this week.

The announcement prompted further softness in the USD as investors ramped up rate cut bets and forecast 65 basis points (bps) of easing for the year: nearly three rate cuts. I do not see three rate reductions happening unless, of course, there is a deterioration in the jobs data. Assuming the Fed remains on hold at the end of July, three rate cuts this year would mean consecutive 25-bp rate cuts at each subsequent meeting in September, October, and November.

Additionally, this week, we have the June US ISM (Institute for Supply Management) manufacturing and services PMIs (Purchasing Managers’ Indexes) out. This follows last week’s June S&P Global flash PMIs, with both coming in higher than the market’s median expectation. We also observed price increases across both manufacturing and services. Consequently, if the ISM PMIs were to reflect a similar picture, this could offer some support to the USD and prompt a moderate hawkish repricing. This may also be more pronounced if the jobs data came in stronger than expected later in the week.

Notably, the Personal Income and Outlays report for May was released last Friday. PCE inflation data (Personal Consumption Expenditures) showed a slight uptick in the YY core measure to 2.7% from 2.5% in April (consensus: 2.6%), with the YY headline report also ticking higher to 2.3% from 2.1%, in line with market consensus. Personal income and spending declined, showing moderate tariff pass-through as consumers pulled back their spending where they could in motor vehicles and particularly in discretionary services like food and travel. So, from this report, what we have here is a situation of lower income and moderately higher prices in May, which follows CPI (Consumer Price Index) and PPI (Producer Price Index) inflation also ticking higher in May.

Charts created using TradingView

Written by FP Markets Chief Market Analyst Aaron Hill

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