Markets brace for payrolls data
The dollar index has been drifting since the sharp drop at the start of August, when a weaker-than-expected non-farm payrolls report dragged it below 100. For most of the month it has been stuck between 97.50 and 98.50, lacking clear direction. This reflects a shift in how investors respond to political headlines, particularly those linked to Donald Trump. Tariff threats are no longer seen as automatic negatives for the dollar. Instead, markets are weighing them against broader macroeconomic signals.

Consider the recent example of a 50% tariff on India, the steepest imposed on a developing economy so far. The dollar initially firmed before easing back, as traders balanced the prospect of Indian retaliation. Only a few months ago, such an announcement might have provoked a sharper sell-off. Now, risk premia are being absorbed into fundamentals, and the dollar ended the week slightly stronger as most of the data was supportive.

The controversy around Federal Reserve Governor Lisa Cook has had little market impact, with legal hurdles tempering speculation. The real focus is on the longer-term risk of a dovish shift once Jerome Powell’s successor is appointed in 2026. Powell’s Jackson Hole remarks pointed towards a 25 basis point cut in September, citing weakness in the labour market, although investors remain cautious, pricing in about an 80% chance. So far, economic data has not been consistently soft enough to justify decisive easing, while the threat of tariff-driven inflation still looms.

Friday’s jobs release will be critical. A stronger figure could push the dollar index towards 98.50 resistance. Although risks are tilted to the downside, we see scope for short-term gains into early September and would look for higher levels as a better entry point to sell the dollar.

Euro waits for a signal from US jobs data
The euro lost 0.4% last week, unsettled by political unrest in both France and the Netherlands. While widening bond spreads across the eurozone rarely drive the currency, the latest tensions reinforce the sense of a fragmented bloc ill-prepared to face Trump’s protectionist policies, which has undermined sentiment.

Even so, the main influence remains the dollar. With the US currency drifting in August, EUR/USD has been confined to a range between 1.16 and 1.17. The euro’s rally earlier in the month was sparked by weak American labour figures on 1 August, yet subsequent resilience in US data capped further upside. Technical momentum has faded, with the 21-day moving average slipping below the 50-day, leaving the bearish crossover intact. Friday’s non-farm payrolls could prove decisive. A soft reading might revive euro strength, while a solid figure could send the pair below 1.16. Until then, consolidation within the current band is likely.

On the European Central Bank front, the latest minutes confirmed a cautious stance. Concerns over weak growth and low inflation remain, but no immediate action is expected. That leaves the euro largely neutral to ECB repricing in the near term, with attention firmly on US data and trade developments.

Risks linked to EU-US trade talks linger in the background. Attempts by the bloc to offer concessions for clarity may yet backfire, as shown in July when clumsy terms triggered a one per cent fall in the euro. Nevertheless, sentiment is not entirely negative. If American data weakens and trade tensions ease, EUR/USD could revisit the 1.18 highs seen in July. Then, as now, a dovish tilt from the Fed provided the fuel. Euro sentiment may be more fragile today, but the underlying conditions could still favour a push higher.

Alongside payrolls, investors should watch the eurozone inflation figures. Only a notably weak reading would sway markets, especially after Germany’s recent upside surprise and the upward revisions to ECB expectations.

Sterling faces seasonal headwinds
The pound has managed a modest rebound, underpinned by stronger UK economic data, rising expectations for a more hawkish Bank of England, and healthier risk appetite. After a four per cent slide in July, GBP/USD recovered more than two per cent through August, consolidating between 1.34 and 1.36.

Seasonal pressures, however, remain a concern. September has historically been difficult for the currency, with average losses of 0.5% and a decline of more than 2% over the past five years. The broader pattern in the third quarter is also weak, with sterling posting a median drop of nearly one per cent against the euro and just over one per cent versus the dollar during the last decade. That trend seems to be repeating this year.

The recent bounce is more a correction of excessive pessimism than the start of a durable recovery. Fiscal uncertainty ahead of the autumn budget and the risk that market repricing of the BoE is driven more by stubborn inflation than by genuine growth momentum may limit gains. The latest data has softened the bearish narrative but has not overturned it. This week, the focus falls on retail sales and final PMI releases, which will help determine whether the recovery has further to run.