Morning Bid: Dazed dollar set for more macro jolts?

A look at the day ahead in European and global markets from Kevin Buckland

The once invincible dollar was still reeling on Tuesday after more macro evidence that the U.S. exceptionalism narrative may be fading.

The dollar index staggered to a new two-month low in Asian hours, taking its decline since Wednesday to more than 1%, following a flurry of weaker U.S. economic readings, most recently a factory slowdown and surprise contraction in construction work.

The big test comes on Friday with monthly payrolls figures, but a jobs market reading later today could also deal the dollar a blow in the form of the JOLTS report – a favourite of former Fed Chair Janet Yellen – which is forecast to show job openings sinking to deeper three-year lows.

Equity markets aren’t sure how to take the news, which on the one hand brings forward potential Federal Reserve rate cuts, but on the other sends a worrying signal about corporate profits.

Not so the bond market, where yields are firmly lower.

From a coin toss a week ago, odds are now 60:40 for a September rate cut, according to the CME Group’s FedWatch Tool.

The next Fed meeting runs from Tuesday to Wednesday of next week, and while it might not bring a policy change, updated economic and rates projections will give fresh fodder for punters.

Of course, the ECB meeting is only two days away, and markets are braced for a hawkish cut. Inflation is flaring up again, making for a murky view of potential policy easing later in the year.

German unemployment is the only euro-zone data of particular note today.

Switzerland, meanwhile, publishes CPI. Inflation is ticking up there too, but economists and traders currently still lean slightly toward a rate cut this month, after the SNB became the first major central bank to kick off an easing cycle earlier this year.

Key developments that could influence markets on Tuesday:

-Germany unemployment (May)

-Switzerland CPI (May)

-US JOLTS job openings (Apr)

(Reporting by Kevin Buckland; Editing by Muralikumar Anantharaman)

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