USD mixed as markets anticipate Fed cuts – BBH

US Dollar (USD) remains mixed as bets on Fed rate cuts rise amid disappointing ADP payrolls and signs of easing inflation pressures. US labor market shows strain with negative job trends, even as services activity holds up, keeping focus on upcoming job cuts and claims data, BBH FX analysts report.

Job cuts and claims data in focus today

"USD is mixed near yesterday’s low. Markets bets on Fed front-loading rate cuts toward neutral levels (near 3%) to avert a sharper job slump risk gaining traction. That can further weigh on USD. ADP private-sector payrolls surprised to the downside at -32k (consensus: +10k) vs. 47k in October, and the three-month trend is concerning with an average of -13k jobs lost in September, October, and November."

"The ISM services index overshot expectation rising 0.2pts to a nine-month high at 52.6 (consensus: 52.0) in November, indicative of solid services sector activity. However, the details support the case for additional Fed funds rate cuts. Prices Paid index dropped to a seven-month low at 65.4 vs. 70.0 in October, indicating that upside risks to inflation are fading. New orders-to-inventories ratio dropped below 1, suggesting firms may need to scale back production as supply exceeds demand. The employment index improved to a 6-month high at 48.9 vs. 48.2 in October but remains in contraction territory."

"The November US Challenger job cut announcement data and weekly jobless claims are today’s highlights. For reference, Challenger job cuts totaled nearly 1.1 million in the year to October. That was the highest cumulative total since 2020, while hiring plans totaled 488k, the lowest cumulative total since 2011. Meanwhile, the jobless claims data is mixed. Initial claims are low by historical standards and suggest there is no layoff spiral underway. But continuing claims are running above levels in 2023 and 2024, reflecting a lengthening in job-finding times."