Dollar Edges Lower as U.S. Jobs Data Shows Signs of Cooling
Singapore/London, September 4 – The dollar saw a slight decline on Monday as U.S. markets closed for a holiday, following the release of U.S. jobs data that indicated a cooling trend. This has led investors to speculate that the Federal Reserve may be nearing the end of its monetary tightening cycle.
Against a basket of currencies, the dollar slipped 0.1% to 104.14, although it remained close to the two-month peak of 104.44 reached on August 25. The index experienced a 1.7% increase in August, breaking its two-month losing streak.
Data from Friday revealed that U.S. job growth accelerated in August; however, there was an increase in the unemployment rate to 3.8%, while wage gains moderated. It was also found that the economy generated 110,000 fewer jobs than previously reported for June and July.
Ray Attrill, head of foreign exchange strategy at National Australia Bank, described the situation as a “Goldilocks metaphor,” suggesting that the report’s signals indicate a favorable outcome. “In relation to the various ‘soft landing’ signals emanating from the report, on this occasion it does seem entirely appropriate,” he said.
A series of economic data releases have indicated moderating inflation and a more relaxed labor market, creating the impression that the U.S. economy is cooling without experiencing a sharp slowdown. This has fueled hopes for a soft landing.
The CME FedWatch tool shows that markets are pricing in a 93% chance of the Federal Reserve maintaining current rates this month. Additionally, there is over a 60% probability of no further rate hikes this year.
As U.S. markets were closed on Monday, trading is expected to be subdued, and traders may hesitate to place large bets due to thin liquidity.
UniCredit analysts anticipate that trading will remain quiet despite scheduled remarks by European Central Bank President Christine Lagarde later in the day.
The euro advanced 0.2% to $1.0793, remaining just off a 10-week low against the dollar reached last week. Sterling also climbed 0.3% to $1.2627.
British finance minister Jeremy Hunt stated over the weekend that inflation is on track to halve by the end of 2023. He expressed commitment to this goal while outlining his priorities ahead of the reopening of parliament after the summer recess.
Revised British data published on Friday indicates that the economy rebounded more swiftly from the pandemic than previously estimated.
In other currency news, the yen slipped 0.09% to 146.39 per dollar. Since mid-August, the Japanese currency has remained around the psychologically significant level of 145, with traders closely monitoring for any signs of intervention.
Last September, Japan intervened in currency markets when the dollar’s surge past 145 yen prompted the Ministry of Finance to purchase yen, pushing the pair back to around 140 yen.
Ahead of the Reserve Bank of Australia’s policy meeting on Tuesday, the Australian dollar gained 0.2% to $0.6465. Market expectations are for the RBA to maintain its official cash rate at 4.10% on September 5, according to a Reuters poll of 36 economists, with only two predicting a rate change.
Both the Australian dollar and New Zealand dollar received a boost on Monday due to measures implemented by Chinese authorities to support China’s property sector.
The Canadian dollar dipped 0.14% to 1.36 per dollar ahead of the Bank of Canada’s policy meeting this week. It is widely anticipated that the central bank will keep rates unchanged.
Looking ahead, investors will be focusing on several speeches by Federal Reserve officials this week in order to gain insight into the central bank’s plans for its next policy meeting on September 19-20.
Reporting by Ankur Banerjee in Singapore and Joice Alves in London; Editing by Susan Fenton
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