Dollar falls as traders bet on more rate cuts
With no major U.S. economic releases on Wednesday traders continued to focus on the implications from Friday's jobs report.
U.S. employment growth was weaker than expected in July while the nonfarm payrolls count for the prior two months was revised down by a massive 258,000 jobs, suggesting a sharp deterioration in labor market conditions.
The greenback fell sharply after the report, paring gains from what had been a relatively strong July for the currency, the first month this year in which the dollar index posted a gain.
'We had the first dollar bounce under Trump's second term, and many people thought that maybe it had some legs, but I think Friday's jobs data killed it,' said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. 'The renewed speculation of not only a cut in September, but another cut at the end of the year, has capped the dollar's bounce.'
Fed funds futures traders are now pricing in an 89 per cent probability of a 25 basis point cut at the Fed's September meeting, up from 48 per cent a week ago, according to the CME Group's FedWatch Tool. In total, traders see 58 basis points in cuts this year.
The Fed may need to cut interest rates in the near term in response to a slowing U.S. economy, even though it remains unclear whether tariffs will continue to push inflation higher, Minneapolis Fed President Neel Kashkari said on Wednesday.
The dollar added to its drop on Friday after U.S. President Donald Trump fired a top Labor Department official, alleging data manipulation.
The dollar index was last down 0.33 per cent on the day at 98.41 and reached 98.36, the lowest since July 28. It posted a 1.35 per cent drop on Friday, the largest one day fall since April.
The euro rose 0.47 per cent to $1.1628 and got as high as $1.1636, the highest since July 28. It recorded a 1.48 per cent gain on Friday.
Investors are also focused on Trump's expected nomination to fill a coming vacancy on the Federal Reserve's Board of Governors and the candidates for the next Fed Chair.
Trump said on Tuesday he would decide on a nominee to replace outgoing Fed Governor Adriana Kugler by the end of the week and had separately narrowed the possible replacements for Fed Chair Jerome Powell to a short list of four.
Trump said he has narrowed his list of candidates to replace Powell to economic adviser Kevin Hassett, former Fed governor and Trump supporter Kevin Warsh, and two other people. Trump did not name those people, but one is thought to be current Fed Governor Christopher Waller.
'From what we can ascertain, Warsh seems to be the most hawkish of the three, while Waller is clearly the most dovish, having dissented at the last FOMC meeting, so any shift in the odds towards the latter would likely be bearish for the dollar,' Matthew Ryan, Head of Market Strategy at Ebury said in a note.
The dollar fell 0.21 per cent to 147.3 yen. It fell 2.24 per cent against the Japanese currency on Friday, the largest daily drop since January 2023.
The greenback pared earlier gains against the Japanese currency after Taro Kono, touted as a candidate to become the next prime minister, said that Japan must balance its budget and push the central bank to raise interest rates to alleviate concern over the country's finances.
Ruling party heavyweight Ken Saito, meanwhile, told Reuters that The Bank of Japan must be cautious about raising interest rates given the expected hit from U.S. tariffs on the fragile economy.
Sterling rose 0.19 per cent to $1.3323 before the Bank of England on Thursday is expected to cut interest rates by 25 basis points.
In cryptocurrencies, bitcoin gained 0.56 per cent to $114,293.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNA
21 hours ago
- CNA
Average US tariffs top 20%, back to 1910s levels: WTO and IMF
PARIS: The average US tariff rate has risen to 20.1 per cent, its highest level since the early 1910s – except for a brief spike earlier this year, after new duties took effect on Thursday (Aug 7), data from the World Trade Organization (WTO) and International Monetary Fund (IMF) showed on Friday. The figure is far above the 2.4 per cent average in place when President Donald Trump took office on Jan 20, 2017. Trump's April 2 announcement of 'reciprocal' tariffs on the United States' main trading partners, followed by further increases on Chinese goods, briefly drove the average rate to 24.8 per cent in May, a figure last seen in 1904, according to the United States International Trade Commission. A trade truce later eased the record tariff levels between Washington and Beijing, but that arrangement is set to expire next week. TRADE DEALS AND NEW DUTIES The WTO and IMF calculations factor in recent US trade agreements with the European Union, Japan, South Korea and other nations, which have now taken effect. The figures also include the latest US tariffs applied to Brazil, Canada and imports of semi-finished copper. These agreements generally imposed lower tariffs than those threatened by Trump in April, but were still higher than the baseline 10 per cent rate introduced earlier in his administration. RATES AT HISTORIC HIGHS The updated average exceeds the nearly 20 per cent rate the United States imposed in the 1930s – an era of protectionism that economists widely believe deepened and prolonged the Great Depression. However, the WTO and IMF stressed that the rate is based on 2024 trade volumes. Actual impacts may differ, as companies have already altered behaviour by stockpiling goods, delaying purchases or shifting suppliers to avoid higher duties. According to the Budget Lab at Yale University, once changes in consumption patterns and knock-on effects are considered, the effective rate could drop to about 17.7 per cent – unless Trump imposes further duties.
CNA
a day ago
- CNA
Canada sheds tens of thousands of jobs as tariffs dent hiring plans
OTTAWA: The Canadian economy lost tens of thousands of jobs in July, sending the share of people employed to an eight-month low, data showed on Friday (Aug 8), as the labour market gave back gains from the previous month. The economy shed 40,800 jobs in July, compared with a net addition of 83,000 jobs in June, taking the employment rate, the percentage of people employed out of the total working-age population, to 60.7 per cent, Statistics Canada said. The unemployment rate held steady at a multi-year high of 6.9 per cent. Analysts polled by Reuters had forecast a gain of 13,500 jobs and a small uptick in the unemployment rate to 7 per cent. "Canada's labour market snapped back to reality in July," said Michael Davenport, senior economist at Oxford Economics. TARIFFS HIT MANUFACTURING US President Donald Trump's sectoral tariffs on steel, aluminium and autos have hit the manufacturing sector hard, reducing hiring intentions, the Bank of Canada has previously said. The number of people employed in manufacturing fell by nearly 10,000 in July from a year earlier as sectors linked to steel, aluminium and autos scaled back hiring and carried out layoffs. Marty Warren, national director of the United Steelworkers in Canada, told Reuters that about 1,000 members have been laid off. Oxford Economics' Davenport expects more layoffs in the coming months, forecasting about 140,000 job losses and an unemployment rate rising to the mid-7 per cent range later this year. Employment in some sectors has remained resilient despite tariffs, the data showed. Overall, there has been little net employment growth since the start of the year, while the layoff rate was virtually unchanged at 1.1 per cent in July compared with the same month a year earlier. YOUTH BEAR THE BRUNT The bulk of July's job losses occurred among workers aged between 15 and 24, whose unemployment rate edged up to 14.6 per cent, the highest since September 2010, excluding the pandemic years of 2020 and 2021. The employment rate for this group, which makes up about 15 per cent of the working-age population, fell to 53.6 per cent, the lowest level since November 1998 if the pandemic years are excluded. The youth unemployment rate is typically higher than the national average. POLICY RATE OUTLOOK The Bank of Canada kept its key policy rate unchanged last week, partly due to labour market strength, but said it may reduce lending rates if inflation stays contained and economic growth slows. "We are now a bit more confident in our view that the Bank of Canada will resume cutting next month, although a surprisingly strong CPI print next week could prompt another pause," said Alexandra Brown, North America economist at Capital Economics. Money market bets put the odds of a rate cut at the next policy meeting on Sep 17 at 38 per cent, up 11 percentage points from Thursday. The Canadian dollar was trading down 0.07 per cent at 1.3753 against the US dollar, or 72.71 US cents. The information, culture and recreation sector lost 29,000 jobs in July, the largest decline, followed by a drop of 22,000 jobs in construction and 19,000 in business, building and other support services.
CNA
a day ago
- CNA
Global stock index sinks with dollar, bond yields after weak US jobs data
NEW YORK/LONDON :MSCI's global equities index sold off sharply on Friday and the dollar took a dive after weaker-than-expected U.S. jobs data fueled economic worries and boosted bets for September interest rate cuts while investors also considered U.S. President Donald Trump's latest tariff announcements and key personnel changes. U.S. Treasuries were in demand after the Labor Department reported that the U.S. economy added 73,000 nonfarm payrolls last month, below economists' expectations for 110,000. June's job growth was revised sharply lower to 14,000 from 147,000. After the report, Trump said he ordered his team to fire the commissioner of the U.S. Bureau of Labor Statistics, Erika L. McEntarfer, nominated by prior President Joe Biden for the role. Then the dollar index and U.S. Treasury yields lost further ground when the Federal Reserve said Governor Adriana Kugler is resigning early from her term on Aug. 8, causing some investors anxiety at a time when Trump has loudly disagreed with Fed rate policies. Late on Friday, traders were betting on an 87.5 per cent probability for a September rate cut compared with 37.7 per cent on Thursday, according to CME Group's FedWatch tool. "The market is reacting to the possibility of the economy flipping into recession. The weak jobs data is piling on to weak earnings reports and weak guidance from some corporations," said Luke Tilley, Chief Economist, Wilmington Trust. MSCI's gauge of stocks across the globe fell 12.23 points, or 1.32 per cent, to 917.39, suggesting its biggest daily drop since mid-April. The softer jobs data added to losses for the global index, which was already in the red after a host of tariff announcements from Trump the day before. On Thursday, Trump ordered tariffs ranging from 10 per cent to 41 per cent on U.S. imports from several major trading partners. He increased duties on Canadian goods to 35 per cent from 25 per cent for all products not covered by the U.S.-Mexico-Canada trade agreement. He set a 25 per cent rate for India's U.S.-bound exports, 20 per cent for Taiwan's, 19 per cent for Thailand's and 15 per cent for South Korea's. Mexico, however, got a 90-day reprieve from higher tariffs to allow for deal talks. On the earnings front, market heavyweight Amazon tumbled more than 8 per cent on Friday after its quarterly report showed cloud computing growth that disappointed investors. On Wall Street, the Dow Jones Industrial Average fell 542.40 points, or 1.23 per cent, to 43,588.58, the S&P 500 fell 101.38 points, or 1.60 per cent, to 6,238.01, for its biggest one-day percentage drop since May 21 and the Nasdaq Composite fell 472.32 points, or 2.24 per cent, to 20,650.13, its steepest one-day drop since April 21. Earlier, the pan-European STOXX 600 index ended down 1.89 per cent, its biggest drop since April 9. In currencies, the greenback reversed course to fall sharply after the data due to increased expectations for rate cuts. Earlier it had found support in fading hopes for U.S. rate cuts. The dollar index, which measures the greenback against major currencies including the yen and the euro, fell 1.37 per cent to 98.66, the euro was up 1.52 per cent at $1.1589. Against the Japanese yen, the dollar weakened 2.26 per cent to 147.32. "The way (the market) is going to interpret (the departures) is in a very dollar-negative way," Juan Perez, senior director of trading, Monex USA, referring to both the Kugler and McEntarfer news. "No matter what the economic picture in the United States, the one thing that holds the U.S. dollar strong in the eyes of the world is the authority and the independence of the Federal Reserve. Whenever anything comes to potentially put that into compromise then that's when the U.S. dollar spirals down." U.S. Treasury yields plunged on the jobs data and the increased bets for September rate cuts, and fell to fresh session lows in the late afternoon after the Kugler announcement. Peter Tuz, president of Chase Investment Counsel, said Trump "is getting a bigger chance to appoint people whose views match his own" at the Fed. Regarding the BLS firing Tuz said "I don't like to see a bureaucrat fired just because the data that gets presented doesn't support the administration's policies." The yield on benchmark U.S. 10-year notes fell 14 basis points to 4.22 per cent, from 4.36 per cent late on Thursday. The 30-year bond yield fell 6.4 basis points to 4.8211 per cent. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 26.1 basis points to 3.69 per cent. In energy markets, oil prices sank about 2.8 per cent after the jobs data and on jitters about a possible production increase by OPEC and its allies. Oil had settled around 1 per cent lower on Thursday. U.S. crude settled down 2.79 per cent, or $1.93 at $67.33 a barrel and Brent settled at $69.67 per barrel, down 2.83 per cent, or $2.03 on the day. Elsewhere in commodities, gold prices rallied to a one-week high as investors sought safety after the weak jobs report, policy easing expectations and the latest tariff announcements. Spot gold rose 2.14 per cent to $3,360.45 an ounce.
