The US Dollar (USD) has weakened since the US labor market report was published a week ago, but only moderately. The period since the labor market report is shaded gray. It can be seen that the US currency is only as weak as it was at the beginning of June, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

Only a slightly higher risk of a US recession

“I conclude that the currency market is by no means excessively pricing in a US recession. My fellow economists recently wrote that they still do not believe in a US recession. However, they also admit that there are new warning signs. A functioning currency market must therefore price in a higher, but only slightly higher risk of a US recession. It has done so, no more and no less.”

“In my opinion, it has even tended to price in too little. I have probably said it too often: a US recession would probably not only have a negative effect on the USD because the Fed would then lower its key interest rate. It would also damage the image of US exceptionalism: the idea that the US economy is growing faster than other developed industrialized countries for a deep, structural reason and that capital invested there is therefore more profitable than elsewhere.”