US inflation expectations drop to fresh five-week low ahead of NFP

US inflation expectations can be held responsible for the market’s latest dislike for the US Dollar, after fueling the Greenback to snap a three-day losing streak the previous day.

That said, the inflation expectations, as per the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) data, remain on the back foot for the fourth consecutive day while declining to the lowest level since July 19.

With this, the 5-year and 10-year inflation expectations per the aforementioned calculations fall to 2.15% and 2.24% at the latest.

It’s worth observing that the Fed officials’ inability to please markets with a major hawkish surprise at Jackson Hole joins the recently mixed US data to raise concerns about the Fed’s policy pivot. However, today’s US employment data for August will be crucial for immediate directions.

The market forecasts 170K figures of the Nonfarm Payrolls (NFP) versus the previously downbeat outcomes of the JOLTS Job Openings, ADP Employment Change and higher prints of the US Continuing Jobless Claims. Additionally, the three-month average of the US NFP halves to 218K versus a year earlier.

Should the scheduled US employment numbers portray tighter job markets, the Fed officials may defend their bias conveying the “higher for longer” rates, which in turn can allow the US Dollar to pare the weekly losses and weigh on the riskier assets.

Also read: Nonfarm Payrolls Preview: Four scenarios for a jobs report set to test US economic resilience