Global FX Strategy: FX Compass: Half-time break

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Global FX Strategy: FX Compass: Half-time break

Global FX Strategy UBS Research

Macro overview: Half-time break

Last week brought fresh challenges for the USD, as US employment data printed below

consensus and markets picked up dovish nuances in Fed Chair Warsh’s comments at the Please refer

ECB Forum in Sintra. The USD nevertheless remains resilient, with the DXY rebounding to the nar

on Monday after failing to break below the March 2026 high near 100.64. Several

factors help explain this hardy performance: rative of thi

s report for 1. US data are robust, even if US jobs numbers disappointed. At 57k, the NFP

headline was softer than expected, with sentiment further undermined by -74k

revisions to previous months. At the same time, our economists note that the report details were noisy, as implied by the unusually large drop in the participation USemployment numbers were softer

rate. This calls for caution in taking the latest print at face value; on a smoothed than expected, but far from weak

two-month moving average basis, NFP was still a respectable 93K in May and Jun.

Jun ISM services numbers were also strong on Monday, with the headline at 54.0

and the employment component back in expansionary territory above 50. This

broader data resilience helps explain why markets are still pricing ~6bp of hikes at

the 29 Jul FOMC, down from ~9bp on 1 Jul, even after a disappointing NFP report.

US real rates remain accordingly buoyant (Figure 2RealyieldsunderscorerobustUSgrowthoutlok).

2. Still no compelling story outside of the US. For weak US data surprises to trigger a USD sellers still struggle to find

broad USD pullback, markets need an appealing story outside the US that can appealing alternatives in G10

attract capital flows.