US August nonfarm payrolls (NFP) takes center stage today (1:30pm London, 8:30am New York). Ahead of the numbers, USD is trading on the defensive against all major currencies, global equity markets are rallying, and bond yields continue to correct lower, BBH FX analysts report.

Dollar softens ahead of key NFP data

"NFP gains in August are expected to be weak at 75k vs. 73k in July. Private sector payrolls, a better indication of the underlying momentum in the labor market, is also seen at 75k vs. 83k in July. The unemployment rate is expected to rise 0.1pts to 4.3% (the highest since October 2021) on an unchanged participation rate of 62.2% while average hourly earnings growth is projected at 0.3% m/m vs. 0.3% in July."

"Risks to US employment are skewed to the downside. The Conference Board Consumer Confidence labor differential index, ADP employment, JOLTS job openings, and the ISM services/manufacturing employment indexes point to cooling labor demand. Interestingly, Fed Governor Christopher Waller estimates that, after accounting for the annual 'benchmark' revisions to 2025, private-sector employment actually shrank, on average, in May, June, and July instead of posting gains of 52k. Perhaps seeking to pre-empt a disappointing NFP, President Donald Trump cautioned yesterday that Americans should not expect to see the 'real' strength of the labor market until next year."

"A steeper pullback in labor demand could push the Fed to prioritize maximum employment over price stability within its dual mandate. That would weigh on USD and underpin the rally in risk assets as markets start to price-in odds for a 50bps Fed funds rate cut at the September 16-17 FOMC meeting. Conversely, an NFP print at or above expectations would strengthen the case for a gradual Fed easing cycle and offer USD near-term support."