US dollar tumbles as labour market cools

The US dollar extended its selloff yesterday after another disappointing jobs report saw markets scale back bets on more policy tightening from the Federal Reserve.

So far today, the pound is mixed. GBP/EUR has risen to €1.1665 while GBP/USD is wavering around $1.2717. GBP/CAD has rebounded to CA$1.7219, while GBP/AUD and GBP/NZD are muted at AU$1.9617 and $2.1335, respectively.

Today could bring significant movement in both EUR and USD as the latest inflation data from the Eurozone and US are both due out. Could signs of sticky inflation see both currencies rise?

What’s been happening?

The US dollar came under fresh selling pressure yesterday as new evidence of a cooling labour market dented US interest rate rise expectations.

After Tuesday’s drop in job openings, the latest ADP employment change report revealed a sharper-than-forecast slowdown in job creation. Signs that the US labour market is starting to slacken saw markets pare Fed rate hike bets.

This weakness in the US dollar lent the euro some support, while higher-than-expected German inflation data also supported EUR.

However, the safer single currency still slipped from a two-week high against GBP. The riskier pound enjoyed an upbeat market mood, while Bank of England (BoE) rate hike bets also served to underpin Sterling.

What’s coming up?

Looking ahead, we could see big swings in the currency markets as the latest Eurozone and US inflation figures are out.

The Eurozone’s consumer price index is forecast to report that both headline and core inflation eased this month. However, German and French inflation have both surprised to the upside. If the CPI prints above forecasts, European Central Bank (ECB) rate rise bets could boost EUR.

Meanwhile, economists expect the core PCE price index – the Fed’s preferred measure of inflation – to show a slight uptick in July. Such a result could reignite Fed expectations, thereby boosting USD.

As for the pound, an ongoing lack of economic data today could leave Sterling to trade without a clear direction.