Of Enrique Diaz-Alvarez*

The dollar’s hesitant recovery took place on Friday, following the disclosure of the weak US labor market report in August, which showed that the large US “employment machine” stops. The markets immediately discounted interest rates in the three remaining Fed meetings for 2025, bonds rose and the shares were sold.

Although the weakness of the US labor market is unquestionable, we observe that market reactions remained restrained outside the bond market, while the dollar and shares ended the week not far from the levels that started it. Overall, the dollar remains so far resistant to two main opposing winds: institutional degradation in the US and the clear slowdown in the US economy.

The weak exposure to the labor market sealed the result of the next September meeting. However, we will pay close attention to the August inflation report on Thursday. The European Week will be dominated by the ECB meeting of September, but we expect the central bank to try to make it as little as possible. An uncertain factor for markets will be the possibility of developments in the legal process by which Trump is trying to dismiss Fed governor Lisa Cook.

Sterling

The uninterrupted rise of long -term British bond yields (GILTS) pauses last week, assisted by the attractive levels at which British government bonds can now be purchased and the weak American exposure to the labor market, which has rekindled them. Nevertheless, Sterling continues to lose ground against the coin of the UK’s main commercial partner, the eurozone, due to fears of stagnation and lack of fiscal credibility by the unstable government of labor. This week, attention will turn to a rich macroeconomic set, although it is for July and are therefore slightly obsolete.

Euro

The ECB’s September meeting may be this week, but it is fully overshadowed by the drama around the French budget. As in the United Kingdom, the government’s inability to implement even mild spending cuts causes turbulence in the bond market. However, the outcome may be more dramatic in the French case, as the government has threatened with resignation if the cuts are rejected by parliament, it seems likely. With inflation having returned to the target and with little financial news this week, we expect the situation in France to be the focus of Lagarde’s press conference after the meeting.

US dollar

The US labor market report in August put an end to the debate on whether the labor market is stuck. Only 22 mm were created, essentially a rounding error. In addition, the revisions in the numbers of previous months were again negative, while in fact June was the first month with net loss of jobs from the Covid pandemic. Unemployment increased and wage increases were sluggish. The negative impact of Trump’s duties on the economy is now unquestionable, as processing in manufacturing has shrunk for the fourth consecutive month and business surveys are constantly reporting disturbance by tariffs as a major suspension. With an interest rate reduction from the Fed now being considered confident later in the month, all eyes are now turning to the September Consumer Price Index (CPI), which is expected to show another month of inflation above the target and confirm that the US is in the midst of complete stagnation.

* Chief Financial Risk Officer of International Payment Company ebury