The US dollar recovered slightly from a seven-week low, with traders awaiting two key factors: the revised benchmark payrolls and August inflation data. Expectations of a downward revision of as much as 800,000 jobs and the CPI reading that remains “stinging” with the CPI at an expected reading of 2.9. This is seen as reinforcing the Fed’s decision to cut rates at next week’s meeting.
In Europe, the euro weakened as the French political crisis escalated after the government fell due to budget issues. Uncertainty over the formation of a new government added pressure to EUR/USD, while the ECB is expected to keep rates unchanged on Thursday. The pound maintained a modest rebound, supported by dollar weakness.
In Asia, currency movements were mixed but tended to be positive against the US dollar. The yen experienced significant volatility following the surprise resignation of the Japanese PM, further distancing the possibility of a BoJ rate hike. The yuan strengthened to a 10-month high after the PBoC set a firmer central rate, signaling continued policy support.
From a regional growth perspective, AUD/USD rose to a seven-week high despite a decline in Australian consumer sentiment. Overall, a combination of weak US labor data, the prospect of a Fed rate cut and European political developments were the main drivers of near-term FX flows, with the US dollar attempting to stabilize as markets await data confirmation.
