Dollar rises on mixed U.S. labor market data, expectations of interest rate cuts
(MENAFN) The U.S. dollar experienced a rise in volatile trading on Friday following the release of U.S. employment data for August, which revealed a smaller-than-expected decline in job growth, suggesting a gradual slowdown in the labor market. According to the U.S. Labor Department's Bureau of Labor Statistics, nonfarm payrolls increased by 142,000 jobs in August, surpassing economists' expectations of a 160,000 job gain. However, July’s job growth was revised downward to 89,000 from a previously reported 114,000, reflecting a more restrained pace of hiring. This complex labor market data indicates a steady cooling, which might support the Federal Reserve’s ongoing consideration of a gradual approach to lowering interest rates. Following the release, the dollar initially weakened against most major currencies but soon rebounded, reflecting traders' reassessment of the economic outlook and interest rate projections.
The euro, which initially rose to USD1.1155 immediately after the release of the jobs report, fell by 0.3 percent to USD1.1078 against the dollar as the greenback strengthened. Similarly, the dollar index, which tracks the U.S. currency’s performance against a basket of six major counterparts, climbed by 0.3 percent to 101.32. Market data from the London Stock Exchange Group showed that traders revised their expectations for the Federal Reserve’s next move on interest rates. There is now a 39 percent chance that the Fed will lower rates from the current range of 5.25-5.50 percent to 4.75-5 percent during its upcoming meeting on September 17-18, down from a 43 percent probability before the jobs data release. Moreover, the dollar advanced by 0.2 percent against the Japanese yen, reaching 143.75 yen, and positioned itself to end a three-session losing streak.
Comments from Federal Reserve officials provided additional context for the dollar’s movements. John Williams, President of the New York Federal Reserve, suggested that improved economic balance might allow for interest rate reductions, emphasizing that future decisions will be closely tied to economic performance. Meanwhile, Federal Reserve Chairman Jerome Powell highlighted a shift in the Fed's focus from battling inflation to preventing further deterioration in the labor market, calling for an immediate start to a cycle of monetary easing. Powell’s remarks at the recent Jackson Hole economic conference signaled the Fed's readiness to pivot towards a more accommodative policy stance, underscoring the dynamic interplay between labor market conditions and the central bank’s strategy moving forward.
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