At the start of the month, there is no avoiding the US labour market report. A continued strong labour market supports a strong US dollar for the time being, economists at Commerzbank report.

Strong labour market, strong dollar

“The market expects the Fed to stick to a tighter monetary policy even if an economic slowdown also becomes apparent on the labor market. As long as the labor market is doing well, there is no reason to question this Fed outlook. And that means that nothing will change for the dollar for the time being.”

“Will the Fed stick to its decisive approach even once social tensions are on the rise or political pressure on the central bank mounts? The market remains sceptical and continues to price in rate cuts for the second half of 2023. This would weaken the dollar and is already limiting the dollar's appreciation potential. However, the longer the labour market remains strong the longer it will take until the Fed has to put its cards on the table. And until then the dollar is likely to remain strong.”