A correction of the USD depreciation following NFP is understandable – Commerzbank

USD was able to benefit from the risk-off sentiment on Tuesday. But even regardless of that, a correction of the USD depreciation following last Friday’s labor market report is understandable, in the view of economists at Commerzbank.

Arguments for an imminent rate cut in the US are not very convincing

The labor market data was not that bad after all. The cooling is certainly not sufficient to dampen fears of inflation. Combined with the still quite solid economic data, which is likely to cause doubts about a recession in the US, the arguments for an imminent rate cut in the US are not very convincing. That can of course change. 

US inflation data for July is due for publication on Thursday. We expect price pressure to be similarly low as in June. Whether that is sufficient to re-fuel rate cut expectations remains to be seen, though. Perhaps market participants will have to be patient and wait for further data publications, hoping that this will provide more clarity.