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The US dollar steadied on Thursday, as traders weighed signals of a softer labour market and awaited further releases.
Job openings fell to a low in July, undershooting expectations, while factory orders dropped for a second consecutive month.
These indicators reinforced the view that the economy is cooling, even as attention now shifts to today’s ISM Services index, expected at 51, and to Friday’s payrolls.
Recent Fed commentary has reinforced a dovish tilt, underscoring the growing risks between sticky inflation and signs of labour market weakness.
Kashkari highlighted the policy dilemma as tariffs may keep goods prices elevated, yet a softer job market constrains the Fed’s ability to remain restrictive. Musalem downplayed inflationary risks and emphasized the likelihood of labour market cooling, while Waller called for cuts amid job deterioration. Taken together, the message is that the Fed is increasingly prioritizing labour stability over inflation control, a stance that could cap the dollar’s upside unless data challenges that view. Futures now price a 98% probability of a 25-basis-point cut in September, with investors also anticipating a series of reductions over the coming quarters.
In the bond market, Treasury yields continued to decline and could remain under pressure as interest rate cut expectations among investors remain strong. However, yields could react strongly to upcoming key data. The ISM Services report will be the next test for sentiment. A reading in line with expectations could reassure investors, while a downside miss may place fresh downside pressure on both the dollar and yields. Friday’s payrolls, however, remain the decisive release for the Fed’s September meeting.
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