**Week Ahead: US Dollar Slips on Trade Uncertainty As NFP, Eurozone HICP Loom**
*By Matías Salord, FXStreet*
The US dollar retreated late last week as trade concerns resurfaced and market participants shifted focus toward key economic data set for release in the coming days. Heightened uncertainty surrounding US-China trade negotiations, along with a flurry of upcoming central bank announcements and high-impact macroeconomic indicators, are expected to drive volatility across major forex pairs. This article provides an in-depth look at the main themes set to define the week ahead, drawing on recent price action and fundamental developments within major economies.
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## US Dollar Weakens Amid Renewed Trade Friction
The dollar index (DXY) reversed course in the latter part of the week as investors grew increasingly uneasy over the lack of progress between Washington and Beijing. Hopes for a near-term resolution to the ongoing trade dispute had buoyed risk assets and supported the dollar in previous sessions, yet the absence of concrete developments triggered a risk-off sentiment that weighed on the greenback.
**Key factors behind the dollar’s pullback:**
– **Limited progress in US-China trade talks:** Negotiations between the world’s two largest economies remain protracted. Markets had priced in the likelihood of a phase-one deal but mixed messages from both sides led to a reassessment of optimism.
– **Soft economic prints:** Subdued data, notably in manufacturing, have raised questions over the strength of the US economy relative to its peers.
– **Safe-haven flows:** Periods of uncertainty have typically seen investors seek haven in assets like US Treasuries and the Japanese yen, pressuring the dollar against certain rivals.
Market participants are now turning their attention to economic data releases such as the US Non-Farm Payrolls (NFP) and the Eurozone Harmonized Index of Consumer Prices (HICP) for additional cues on monetary policy trajectories.
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## Non-Farm Payrolls: The Week’s Pivotal US Release
Friday’s release of the US employment report is set to provide a comprehensive snapshot of labor market conditions. While recent months have witnessed robust headline payroll growth, accompanying measures like average hourly earnings and labor force participation will be scrutinized for signs of underlying momentum.
**What traders should watch:**
– **Headline payroll growth:** Markets anticipate a reading near 180,000 jobs added in the latest month, although prior surprises have fueled volatility.
– **Unemployment rate:** Expected to remain anchored at historically low levels below 4 percent.
– **Average hourly earnings:** The pace of wage growth is a leading indicator for inflationary trends and thus for Federal Reserve policy direction.
– **Participation rate:** Changes here can signal shifts in labor market confidence.
A strong report would likely reinforce the Federal Reserve’s wait-and-see approach, keeping rates on hold after three consecutive cuts in 2019. By contrast, evidence of deceleration in employment or earnings could stoke bets on further monetary easing, potentially reviving downward pressure on the dollar.
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## Eurozone HICP: Gauging Disinflation Risks
Across the Atlantic, the Eurozone flash HICP (Harmonized Index of Consumer Prices) reading is considered a bellwether for European Central Bank (ECB) policy expectations. Recent inflation prints have trended stubbornly below target, keeping policy rates in negative territory and fueling speculation about additional monetary stimulus.
**Critical details:**
– **Core HICP:** Stripping out volatile food and energy prices, the core measure has consistently failed to reach the ECB’s medium-term goal.
– **Signals for ECB rates:** Inflation dynamics remain a decisive variable as the central bank seeks to balance a sluggish recovery with low inflation expectations.
– **Market response:** A stronger-than-expected reading would bolster the euro, while another undershoot could trigger further monetary accommodation bets.
Added to this, the ECB’s ongoing strategic review—and the debate over fiscal versus monetary stimulus—remains a focal point for euro traders
Read more on GBP/USD trading.