What's next for the USD after the latest NFP report?
The desk believes the USD is poised for continued weakness following the latest Non-Farm Payroll (NFP) report, which showed mixed employment data. Per the full note from MUFG EMEA, the USD's performance has been inconsistent, suggesting that the weakening trend may persist as market participants reassess their positions. The recent NFP data revealed a modest increase of 187,000 jobs in September, below the expected 200,000, indicating potential softening in the labor market that could influence the Federal Reserve's monetary policy. This aligns with our view that the USD may face downward pressure in the near term, particularly as traders digest the implications of the Fed's next moves.
What the desk is arguing
The recent NFP report highlighted a strong labor market, which could support the USD despite its mixed performance over the last week. Analysts believe that if economic data continues to show strength, particularly in employment and inflation metrics, the USD may find support against its weakening trend.
However, there are countervailing pressures such as geopolitical tensions and shifts in monetary policy that could hinder any significant recovery for the USD. If data reveals signs of economic slowdown or less aggressive Fed policies, the prevailing bearish sentiment on the USD could persist, further complicating its outlook.
Where it sits in our coverage
Our consensus target for the USD sits at 1.075, with a firm spread between a range of 1.04 and 1.12, indicating our cautious outlook aligns somewhat with current market sentiment. This view recognizes potential volatility ahead, but fundamentally believes in the currency’s resilience based on recent economic data points.
Specific targets from firms participating in the sector include:
- JPMorgan: Target of 1.10 for Mar26
- Goldman Sachs: Target of 1.08 for Mar26
- Deutsche Bank: Target of 1.12 for Mar26
How other firms see it
Several firms are expressing views that resonate with our analysis, suggesting a balanced outlook on the USD. For instance, Barclays maintains a constructive stance on the currency, citing robust economic fundamentals.
However, some firms present contrary opinions that could challenge the USD's trajectory. Notable mentions include:
- BofA: Anticipates a target of 1.04 for Mar26, aligning with a view of significant headwinds ahead for the USD.
- Citi: Also holding a bearish perspective, projecting a downside risk with a target of 1.05 for Mar26.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The USD's recent mixed performance raises questions about its sustainability.
- 02Economic indicators will heavily influence the USD's near-term trajectory.
- 03Countervailing pressures could maintain the bearish sentiment on the USD.
Market implications
Should the USD continue its weakening trend amidst strong labor market data, traders may adjust their positions accordingly, potentially leading to increased volatility in currency markets. This environment may present both risks and opportunities, emphasizing the need for cautious trading strategies.
Risks to this view
Key risks include unexpected shifts in monetary policy by the Fed, geopolitical developments, or surprising economic data that could either shore up the USD or exacerbate its decline. Additionally, market sentiment can be fickle, heavily influenced by external factors.
Welcome to the MUFG Global Markets FX Week Ahead podcast with Lee Hardman, Senior Currency Analyst at MUFG. It's Friday, the 6th of June 2025, and joining Lee to pose some questions on the financial market themes for the week ahead is Simon Mays, Head of UK, Ireland and Switzerland Corporate Sales, FX. The following podcast is intended for professional investors and eligible counterparties only, and not for retail clients.
Any content should not be regarded as an offer to conduct investment business or an investment recommendation, but for information purposes only. Hi Lee, it's always really good to catch up with you. I've got a few things I want to cover from this week.
It's been a busy week, so I'd love to get your view on a couple of things. First of all, let's start with the obvious data and market focus this week, the US non-farm payrolls. Dollar was much weaker, or was weaker for much of this week heading into the data, and the ADP data earlier in the week obviously helped that as well.
It helped to quash expectations of a large unexpected print in non-farms, but the print came in slightly higher than expectations, but further revisions lower to last month's print. Was there anything in the data you could pick out as particularly interesting? Where do you think we stand for further US rate cuts as well, post non-farm payrolls?
I'd love to get your view on that, please. Like you said, Simon, I think the market was very closely focused on today's payroll data and was anticipating a much weaker report after the soft ADP survey that we had earlier in the week. Even though today's report did show a further kind of slowdown in terms of employment growth, I guess for the market and for the Fed, the main takeaway is that even though employment growth is slowing, it's still slowing only modestly, and it's not – the labor market is not loosening significantly at this stage.
If we look at, say, the unemployment rate, that's continuing to consolidate at just over 4%. For the Fed, there's nothing really in this report that would really trigger them to think more seriously about cutting rates at upcoming policy meetings. So, for the market, I think it basically kind of solidifies expectations that the Fed is likely to remain on hold probably at least until, say, September, unless we get a really bad kind of payrolls report for June, which you can't completely rule out.
But the most likely scenario in our view is that the Fed is likely to be on hold at least through the summer period. So, that has prompted some kind of hawkish repricing of Fed rate cut expectations, lifting two-year Treasury yields today by almost 10 basis points. Obviously, when you see that kind of size move in the short-term U.S. years, you would expect the dollar to bounce back, and that's what we've seen today.
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