The U.S. Dollar (USD) continued its downward trajectory on Tuesday, with traders selling off the currency amid shifting expectations in the market. Short-term U.S. interest rates declined as speculation mounted ahead of a key release of revised U.S. jobs data, according to ING’s FX strategist Chris Turner.
Potential Impact of Employment Data Revisions
The focus is on today’s anticipated revisions from the Bureau of Labor Statistics (BLS), which will update employment growth figures for the year leading up to March 2024. These revisions, utilizing more accurate tax records, could lead to a significant downward adjustment in job gains during this period—possibly by as much as 500,000 to 1,000,000 jobs.
If such a substantial reduction in job growth materializes, it could indicate that the Federal Reserve may have previously overestimated the tightness of the labor market. This would suggest that the central bank might currently be underestimating the potential slack that could emerge as the economy slows down. The revised data is set to be released at 16:00 CET and poses a potential downside risk for the USD.
Federal Reserve Minutes and Market Reactions
Later today, the Federal Reserve will release the minutes from its July 31st Federal Open Market Committee (FOMC) meeting. This meeting marked a shift in the Fed’s focus towards its dual mandate of managing inflation and maximizing employment. According to Turner, the minutes might reveal that while the Fed was becoming more confident in its handling of inflation, there were growing concerns regarding the labor market.
As the USD index (DXY) continues its decline, falling towards the 101.00 level, market participants are closely watching to see if this trend signals the start of a more significant shift in market dynamics. The performance of the DXY around this critical level could offer further insights into the direction of the currency in the coming days.