MUFG Research discusses the USD outlook in light of yesterday's ISM MFG print which dipped below the 50 mark.
"The drop in the index to 49.1 in August was the lowest in three years, sending US equities and yields lower and driving appetite for haven currencies like the yen. Although this ISM report is not necessarily predictive of Friday’s NFP figures, further weakness in the employment subcomponent of ISM could well precede a weakening of the US labour market," MUFG notes.
"The risk to this view is that a weaker US economy will certainly not play well with President Trump’s support base and that further weakness could well see a more conciliatory tone from the Trump administration towards China as far as tariffs are concerned. However it would likely take more weakness in the US for President Trump to change his stance. So we are not at the point yet of a shift in trade policy and hence we maintain our long-held bias of further declines in USD/JPY," MUFG adds.