Market Brief: Markets brace for key payrolls report

With uncertainty running high ahead of this morning's jobs report and fresh questions emerging about the course of the conflict in the Middle East, activity across financial markets is subdued. Equity futures are pointing to small gains at the open, Treasury yields are stable, and most major foreign exchange pairs are essentially unchanged from yesterday's close. The Japanese yen is holding steady after giving back nearly half of its post-intervention gains.

Global trading floors are focused on the US payrolls report, due in under an hour—an event that should be a snoozer but might force a rethink of the Federal Reserve's policy trajectory. The consensus is looking for 80,000 jobs added last month, after June's unexpectedly weak print of 57,000, with unemployment holding at 4.2%. Money markets are putting the odds on a September hike at around 55%; and although policymakers are plainly more concerned by the inflation half of their mandate, a surprise either way could tip the balance and move currencies.

Brent crude prices are up almost 4% to $82 a barrel after the Iranian parliament began debating a bill that would block US, Israeli, and other “hostile” vessels from travelling through the Strait of Hormuz, and as Yemen’s ⁠Houthis launched attacks on Saudi forces. Oil benchmarks fell sharply on Tuesday when Treasury Secretary Scott Bessent said he expected a deal to reopen the Strait “today or tomorrow”.

The Mexican peso is trading on a firmer footing after Banxico revised its medium-term inflation forecasts higher, effectively closing the door on further rate cuts. In yesterday’s widely-expected decision, the central bank left its benchmark rate unchanged at 6.5% and maintained its forward guidance, highlighting downside risks to growth and upside risks to inflation from US policy changes and the war in Iran. Inflation is now expected to return to the 3% target in the fourth quarter of 2027—two quarters later than previously anticipated—reinforcing the case for keeping rates elevated and maintaining the peso’s attractiveness to carry traders.

The Canadian dollar is drifting sideways, having once again tried and failed to break decisively through the 1.40 threshold against the greenback. This morning's jobs report, which will land alongside its far louder American equivalent, is expected to show employment rising for a third consecutive month and the unemployment rate holding at 6.5%, aligning with a broader firming in economic data. But trade concerns ahead of the August 19 deadline for President Trump's latest tariff salvo are keeping the loonie discounted. We still expect it to grind higher by year-end, but remain wary of reversals along the way.

Provided that there are no major upside surprises, the greenback looks vulnerable to a further loss of altitude in the coming weeks. Provided there are no major upside surprises, the greenback looks vulnerable to a further loss of altitude in the coming weeks. Next week will bring more clarity, with updates on US consumer and producer prices alongside retail sales, but growing conviction that tensions in the Middle East will eventually ease, a steady slide in energy prices, and scant evidence of spillover into core inflation should pull back expectations of monetary tightening across most advanced economies—with the Fed seeing the most extensive second-guessing. Other economies are showing signs of improvement, with the euro in particular benefiting from a sharp turn in economic surprise indices, as data routinely beats forecasts. And with speculators holding a near-record net long position in the dollar, some rebalancing looks likely—and prudent—before the autumn.

From what we can tell, there is no meaningful ‘sell America’ trade under way in global markets, but a passive diversification trend does appear to be taking hold, with asset valuations rising by more outside the US than within it. Currency markets should, at some point, begin to reflect the more multipolar world they now inhabit.

Please note: regular distribution of the morning Market Brief will resume on August 24, but we will endeavour to update you if anything momentous occurs in currency markets in the interim. Enjoy the peace and quiet : )

Market Overview

Data as of 7:15 AM EDT

Notes: DXY: Dollar index, DMA: Daily Moving Average, Pivot points are calculated on a one-month basis, 3-month and 10-year spreads are against USD, Implied V.: implied at-the-money option volatility

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