US Dollar: Wait-and-see mood before payrolls – ING

ING’s FX Strategist Francesco Pesole reveals a cautious market sentiment ahead of the upcoming US payrolls report. Despite improved Gulf-related risk sentiment and stable Federal Reserve rate expectations, Pesole predicts that the Dollar will remain in a broad range. The anticipation of limited Fed pricing changes and the impact of data and Fed communication will likely outweigh fluctuations in oil and geopolitical headlines.

The Iran-Oman deal to open a safe shipping route in the Strait of Hormuz has temporarily boosted risk appetite, favoring higher-beta currencies. Nevertheless, G10 moves have remained restrained this week, as tomorrow’s US payrolls report remains the key driving force. Fed meeting expectations have remained consistent since July, with 14-17 basis points expected for September and 30-35 for December.

This is attributed to the fact that US rate expectations are currently driven more by data and Fed communication than energy prices. Recent US payrolls from ADP came in softer than expected at 44k, and the ISM services index dipped less than anticipated to 54.1. The services employment subindex dropped to 47.5, indicating some potential downside risks for tomorrow’s payrolls.

Market participants are also eagerly awaiting news on US-Iran negotiations, as positive headlines may not generate significant USD weakness. With payrolls looming, a wait-and-see approach may keep volatility contained and maintain the dollar in a broad range.