UFG Says US Jobs Report Could Be Key for the Dollar's Near-Term Outlook

Lee Hardman, currency strategist at MUFG, said recent comments from Federal Reserve officials suggested that inflation expectations had moderated while policymakers continued to assess the outlook for monetary policy. He noted that the latest communication reflected a somewhat less hawkish tone compared with earlier remarks, while emphasizing that future policy decisions would remain dependent on incoming economic data.

According to Hardman, this places increased importance on Thursday's US Nonfarm Payrolls report. MUFG's latest foreign exchange outlook assumes that the Federal Reserve will keep interest rates unchanged for the remainder of 2026. However, Hardman noted that if economic conditions prove stronger than expected and policy expectations shift accordingly, the US Dollar Index could appreciate by an additional 3%–5% from current levels.

Recent US economic indicators have presented mixed signals. Employment growth has remained relatively resilient in recent months, although market consensus expects June payroll growth to moderate to around 110,000. Earlier this week, ADP reported private-sector job growth below market expectations, while the unemployment rate has remained near 4.3%, an important indicator monitored by Federal Reserve policymakers.

The Federal Reserve's latest economic projections also reflected differing views among policymakers regarding the outlook for interest rates, highlighting the continued importance of incoming economic data in shaping future policy decisions.

MUFG said that continued US Dollar strength could depend on stronger-than-expected employment data and broader signs of resilience in the labor market. Conversely, if economic data soften, the bank's base-case scenario continues to anticipate stable Federal Reserve policy and a moderation in the Dollar's recent momentum.

Sources: MUFG (Lee Hardman), Federal Reserve, ADP, TradingEconomics. This article is provided for informational purposes only and does not constitute investment advice.1