UK labour market report on the agenda today

The dollar is sitting on slightly higher ground as we approach European trading today. The greenback remains buoyed since trading last week, fueled by a couple of key factors:

1. The US CPI data here kicked off renewed fears of inflation being more stubborn than anticipated
2. Safety flows arising from geopolitical tensions between Israel and Iran
3. Risk assets correcting lower amid a combination of the above two factors
4. Treasuries selling off with 10-year yields now hitting 4.60% – highest in five months

To keep things more simple, I would argue that the dollar’s strength is just a case of a divergence trade.

While all other major central banks are on the cusp of starting rate cuts, the timeline for the Fed just keeps getting pushed back. We’ve now gone from March to June, and now to September. And the total Fed rate cuts priced in for the year now is just a measly 43 bps. Mind you, this was 156 bps at the end of last year. What a difference four months can make.

In any case, that is where we are now.

Looking to European trading today, there might not be much to really change that picture. At most, dollar bears can afford for some relief in geopolitical tensions to help arrest the recent surge in the dollar. Otherwise, the trend is your friend and it is tough to pick at a reversal when the technical momentum is still persisting.

We will have the UK jobs data coming up but sterling is not likely to be too impacted by that. A BOE rate cut remains poised for some time in August and the labour market data still has some quirks to be ironed out by ONS.

0600 GMT – Germany March wholesale price index0600 GMT – UK March payrolls change0600 GMT – UK February ILO unemployment rate0600 GMT – UK February average weekly earnings0800 GMT – Italy March final CPI figures0900 GMT – Eurozone February trade balance data0900 GMT – Germany April ZEW survey current conditions, economic sentiment

That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.

This article was written by Justin Low at www.forexlive.com.