US Dollar: NFP and inflation mix complicate Fed path – BNY

BNY strategists John Velis and David Tam discuss the complexities facing the Federal Reserve, as two key economic indicators, the July Nonfarm Payrolls (NFP) report and upcoming Consumer Price Index (CPI) releases, present a mixed picture. They predict around 80,000 new jobs in the NFP, with a breakeven near 50,000 per month, suggesting unemployment could remain steady.

A weaker NFP print could impact 2-year yields and rate-hike expectations. Persistent inflation, supply shocks, artificial intelligence-related capital expenditures, and a constrained labor supply are factors keeping U.S. interest rates uncertain. The analysts emphasize that "a tricky mix of factors" complicates market pricing, and the Fed's steady state has not yet been reached.

Following the NFP report, two more CPI releases are scheduled, and Fed Chair Jerome Powell's speech at the Jackson Hole symposium at the end of the month will provide additional insights, though his short tenure thus far limits expectations for specific rate movements. The market continues to learn about the new Fed leadership, with the British pound experiencing selling pressure against the US Dollar during European trading hours.

Meanwhile, the Eurozone's strong inflation outlook supports the case for a European Central Bank rate hike at the next meeting, while gold remains within a range below $4,100, awaiting further developments related to the Middle East crisis. The uncertainty surrounding U.S.-Iran peace talks also contributes to the appeal of the US Dollar as a safe-haven asset.

In the cryptocurrency sector, Aave (AAVE) shows a mild recovery, trading above its 50-day Exponential Moving Average at $90.80, with V3 deployment on the Monad blockchain attracting over $500 million in deposits in the past month, highlighting growing user adoption.