Dollar vulnerable to a further sell-off once employment data weakness is confirmed in NFP – MUFG

US jobs market will be key for the Fed and the Dollar, economists at MUFG Bank report.

We are close to a turn toward weaker employment data

The primary piece of economic data that gives justification to the continued hawkish rhetoric from the Fed is the strength of the labour market. But evidence is building that we are close to a turn toward weaker employment data.

Of course, we can’t be sure these signs of weakness will become evident in the NFP in the July release for June data. And if the data holds up again then a hike by the FOMC in July is more likely. The data does though make us confident a turn will materialise over the coming two to three months and that leaves the Dollar vulnerable to a further sell-off once the weakness is confirmed in NFP. 

Our current EUR/USD forecasts are 1.0900 in Q2 and 1.1300 in Q3 which reflects our view of a turn in the jobs data that intensifies once again recession fears and strengthens expectations of rate cuts at the back-end of this year and in 2024, which will help fuel renewed Dollar selling.