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Overview: The focus is on US employment today. Weak jobs growth and a tick up in the unemployment rate are expected to spur the Fed's first rate cut of the year in a couple of weeks. Position adjusting ahead of the report has weighed on the greenback broadly and overwhelmed the unexpectedly poor Germany factory orders and the data problem in UK that has exaggerated activity. Only a handful of emerging market currencies have not been lifted by the selling pressure on the greenback. These include the Turkish lira, Russian ruble, and Indian rupee. 

Stocks and bonds are firm. All the large bourses in the Asia Pacific region rallied, led by the nearly 2.2% surge China's CSI 300. The Nikkei, the Hang Seng, and Taiwan's Taiex rose more than 1%. Europe's Stoxx 600 came into today practically flat on the week and is up about 0.2%. US index futures are trading with a firmer bias, as well. Gains in the S&P and Nasdaq will challenge the record highs. European benchmark 10-year yields are mostly softer and premiums over Germany have narrowed a little. The 10-year US yield a little lower, slipping through 4.16%. It is the lowest since May 1. Lower yields and a weaker dollar are helping support gold, which is hovering near $3350. It is around $100 higher on the week. October WTI is trading quietly in a half-dollar range above $63. 

USD: The range the Dollar Index carved on August 22, the day Fed Chair Powell spoke at Jackson Hole remains operative. Only a convincing break of it is important from a technical perspective (~97.55-98.85). Everything else is churn. Today is about the jobs data. Sure, the Fed has two mandates full employment and price stability. Yet, it is clear that the deterioration of the labor market is the new new thing, not inflation being above target. Isn't this Powell meant when he suggested that the risk assessment may be changing? The July JOLTS on Wednesday showed that for the first time since April 2021, the number of unemployed outstripped job openings. Just as troubling was the decline in health care job openings in July to the lowest level in five years, and that sector accounted for around 40% of all new jobs in the past three years. Powell was also clear that the supply of workers (via immigration) has fallen at the same time demand has slowed. The unemployment rate is a useful metric of the balance of supply and demand, while the non-farm payroll, which captures the immediate attention of market participants only captures the demand. The median forecast in Bloomberg's survey is for a 75k rise in non-farm payrolls, though after the soft ADP estimate, some will claim a lower whisper number, whatever that really means. The unemployment rate is expected to rise to 4.3% (from 4.2%). Moreover, next Tuesday, the BLS will announce the preliminary benchmark revisions to the establishment survey, which generates the non-farm payroll estimate. The market is not waiting for next week's CPI, which is expected to see another small rise in the headline rate to fully discount a rate cut at the conclusion of the FOMC meeting on Sept 17.

EURO: The euro set the session low yesterday in North America, despite ADP reporting weaker than expected private sector job creation and softer US rates. It has recovered and is trading near a three-day high in the European morning near $1.1690 despite unexpectedly poor German factory orders. Germany factory orders fell by a whopping 2.9% in July, owing to a collapse of large orders. The fact that the June decline was revised to a 0.2% fall instead of the 1.0% drop initially reported offered slight consolation. Industrial production figures are due Monday, and previously economists expected a 1.2% gain after the 1.9% slump in June. Recall that after the July US jobs data on August 1, the euro rallied almost two cents and settled slightly below $1.1590. There are almost 2.1 bln euros in options struck at $1.16 that expire today and another 1.5 bln euros there that expire Monday. Also, on Monday, options for 1.12 bln euros at $1.17 expire. France is the center of a maelstrom next week. There are really two components. First is the vote of confidence on the 2026 budget. It stands a snowball's chance in Hades of being approved. President Macron must know this and likely has been considering the next candidate for prime minister. The second component of the French story takes place at the end of the week when Fitch announces its review of the AA- rating it ascribes to France, with a negative outlook. A downgrade is possible, if not likely, given the failure to rein in the budget. It was 5.8% of GDP in 2024, and little improvement is seen this year. Some fear a contagion impact to the periphery and especially Italy. 

CNY: The dollar recorded the low for the year against the offshore yuan at the end of last week near CNH7.1160. It recovered to almost CNH7.15 on Tuesday and consolidated in Tuesday's range over the past couple of sessions. The greenback slipped to a four-day low today, slightly above CNH7.13. After lowering the dollar's reference rate for the past several weeks, the PBOC steadied it this week. None of this week's fixes (including today's at CNY7.1064) were below last Friday's (CNY7.1030). It is only the fourth week since mid-April that the dollar's fix did not fall on a weekly basis. Many of China's critics want the yuan to appreciate but the dispute now seems more over the pace than direction. 

JPY: Despite a further softening of US interest rates yesterday, the dollar found better traction against the yen after initially dipping to JPY147.80 to take out Wednesday's low. The greenback set session highs in early North American turnover, after the soft ADP was reported, to almost JPY48.80. It is trading quietly with a softer bias inside yesterday's range. Labor cash earnings rose 4.1% year-over-year in July, well, above the June pace of 3.1%, which was the most this year. It was sufficient to lift real earnings to 0.5%, which is also the strongest reading of the year. Nevertheless, while income or wealth is necessary for consumption it is not sufficient. Household spending (reported in real terms) disappointed. It rose 1.4% year-over-year in July. The median forecast in Bloomberg's survey anticipated a 2.3% increase. The odds of a hike in October were shaved to a little more than 50%. It was around 67% at the end of last week. 

GBP: Sterling traded near a four-week low on Wednesday slightly below $1.3335 before recovering to about $1.3460. It did not have the strength yesterday to push above it, and what appeared to be profit-taking, pushed it back to nearly $1.3415. It rebounded to around $1.3480 today. UK retail sales (reported in volume terms) rose by 0.6% in July. However, the statistical office acknowledged a seasonal adjustment error that impacted a range of data including retail sales, but also GDP, prices, and the labor market. The error means that retail sales rose 1.1% in H1 25 not 1.7%, about a GBP2 bln error. June's initial 0.9% increase in retail sales was revised to 0.3%. 

CAD: The greenback rose to a six-day high around CAD1.3845 yesterday to approach the (61.8%) retracement of the decline since Powell spoke at Jackson Hole around CAD1.3850. Between CAD1.3850 and CAD1.3860, more than $1 bln in options expire today. Support is seen in the CAD1.3775 area. In today's softer US dollar environment, the Canadian dollar is the laggard among the G10 currencies. Canada reports August jobs data today. The reaction to the US employment report sets the tone and the broad direction, but in terms of policy, outlook for the Bank of Canada, the data could be impactful. The swaps market lifted the chances of a cut later this month after the disappointing Q2 GDP last week. The odds have risen to around 70% from about 55% at the end of last week. 

AUD: The Australian dollar continues to coil. It recorded a range of roughly $0.6485-$0.6460 on Tuesday and traded inside it on Wednesday (~$0.6500-$0.6555). It held above $0.6500 yesterday where options for almost A$1.1 bln expire today and another set for nearly the same amount struck at $0.6600 that also expire today. It is firm but has held yesterday's high. Australia has a quiet economic diary in the week ahead. 

MXN:  Mexico's economic diary is light ahead of the weekend, leaving it at the mercy of the dollar's reaction to the employment report. The greenback continues to chop inside Tuesday's range (~MXN18.6225-MXN18.8635). Mexico reports August CPI next Tuesday and July industrial production next Thursday. Barring an upside surprise with the inflation report, and the core rate does not wander much further above 4.0%, the central bank is likely to ease when it meets the week after the Federal Reserve. The current target rate is 7.75%, and the swaps market sees the terminal rate between 7.0% and 7.25%. 

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