US Dollar Under Hawkish Pressure from Labour Data and Fed Rate Hikes

Deutsche Bank strategists have outlined a US macro backdrop where the Federal Reserve (Fed) held rates but three officials dissented for a hike, keeping inflation concerns alive.

Their forecast is that there will be two further 25bp increases this year and they closely watch upcoming labour and activity data. According to them, futures pricing of additional 2026 Fed moves and a steeper Treasury curve underscore ongoing policy-driven Dollar dynamics.

They tie the Fed's path to labour data, which will dominate the week ahead. The JOLTS report tomorrow, ADP employment survey on Wednesday, and building up to Friday's July employment report are closely watched indicators.

Their economists expect Friday's July payrolls report to show employment growth of +65k, modestly above June's +57k reading, while private payrolls are also expected to rise by +65k after +49k previously. The unemployment rate is forecast to remain at 4.2%, although risks are skewed towards a rounding up to 4.3% if labour force participation rebounds.

Activity indicators will also feature prominently. The ISM manufacturing index today is expected to improve to 54.1 from 53.3, while the ISM services index Wednesday is forecast at 54.3, little changed from June's 54.0. Productivity data Thursday should provide another read on underlying economic momentum.