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Headlines
- The dollar index (DXY) recovered from a one-week low, finishing up by 0.10% due to increased demand amid falling stocks.
- Support for the dollar came from stronger-than-expected average hourly earnings for August, influencing Fed policy expectations.
- Despite weaker-than-anticipated nonfarm payrolls and dovish Fed comments, the market anticipates a potential rate cut at the upcoming FOMC meeting.
The dollar index (DXY) saw a recovery on Friday, ending the day up by 0.10% after reaching a one-week low. This rebound was driven by increased liquidity demand following a decline in financial stocks and broader stock prices. Additionally, news that August's average hourly earnings rose more than anticipated provided further support for the dollar, impacting expectations for Federal Reserve policy.
Initially, the dollar faced challenges after August's nonfarm payrolls increased by 142,000, falling short of the expected 165,000. July's payroll figures were also revised downward, contributing to the initial decline. Further weighing on the dollar were dovish comments from Federal Reserve officials. New York Fed President Williams and Fed Governor Waller suggested it might be time to reduce interest rates.
August's nonfarm payrolls grew by 142,000, underperforming compared to the forecast of 165,000. The revised July figure showed a lower increase of 89,000 instead of the previously reported 114,000. The unemployment rate for August dropped by 0.1 percentage points to 4.2%, aligning with expectations.
On a positive note, August's average hourly earnings rose by 0.4% month-over-month and 3.8% year-over-year, surpassing forecasts of 0.3% and 3.7%, respectively.
In response to these developments, New York Fed President Williams indicated that with the economy stabilizing and inflation on track, it may be appropriate to ease the policy stance by reducing the federal funds rate target range. Fed Governor Waller also expressed openness to adjusting rates, noting that the focus has shifted toward employment, which may warrant policy changes.
The markets are currently pricing in a near-certain 25 basis point rate cut at the September 17-18 FOMC meeting, with a 34% chance of a 50 basis point reduction.
