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Headlines
- The dollar index fell due to weaker-than-expected US nonfarm payrolls and dovish comments from the New York Fed.
- Short covering and higher-than-expected average hourly earnings helped the dollar recover from its lowest levels.
- Euro fell against the dollar due to weaker Eurozone economic data, including revised GDP and industrial production figures.
The US dollar index slipped to a 1-week low, down by 0.02%, following weaker-than-expected August nonfarm payrolls and a downward revision of July's payroll data. Additionally, comments from New York Fed President Williams, suggesting it may be time to reduce the degree of policy restrictiveness, further pressured the dollar. Williams noted that inflation is on track towards the Fed’s 2% target, signaling a potential shift in interest rates.
Despite its initial drop, the dollar regained strength as short covering emerged, coinciding with a rebound in T-note yields. News of stronger-than-expected average hourly earnings for August also provided support, signaling a hawkish tone regarding future Fed policy. August nonfarm payrolls rose by 142,000, which was lower than the expected 165,000, while July’s figures were revised down to 89,000 from the previously reported 114,000. The August unemployment rate dropped slightly to 4.2%, aligning with predictions. Additionally, the recovery in the dollar and T-note yields is likely to impact financials stocks, reflecting broader economic and policy expectations.
US average hourly earnings for August increased by 0.4% month-over-month and 3.8% year-over-year, exceeding the expected 0.3% and 3.7%, respectively. This rise in earnings added a hawkish factor to the outlook for the Federal Reserve’s upcoming decisions.
New York Fed President Williams emphasized that with inflation moderating and the economy stabilizing, reducing the target range for the federal funds rate is now appropriate. The markets are fully pricing in a 25 basis point rate cut at the September FOMC meeting, with a 41% chance of a larger 50 basis point reduction.
The euro weakened against the dollar, dropping 0.18% after touching a 1-week high. The euro faced pressure from the dollar's recovery, coupled with disappointing Eurozone economic news. Eurozone Q2 GDP was revised lower, while industrial production in Germany and France for July fell more than anticipated. These factors weighed heavily on the euro's performance today.
