09/09/2024 - 08:30 UTCThe dollar initially weakened on Friday, reaching lows last seen in late August, however, it rebounded later in the day, with the dollar index (USDX) closing 0.11% higher. On Monday, the dollar continued its upward trend as investors await this week's U.S. inflation data for more guidance on the potential size of an interest rate cut by the Federal Reserve later this month. The previous week's U.S. jobs report failed to provide clarity on whether the Fed would opt for a standard 25-basis-point rate cut or a more aggressive 50-basis-point reduction. Although August's job growth fell short of expectations, a decline in the unemployment rate and sustained wage increases suggested that the U.S. labor market was moderating, but not to a point that would raise significant concerns about economic growth.
According to the CME's FedWatch tool, the market is currently pricing in a 73% chance of a 0.25% interest rate reduction by the Federal Reserve in September. While a larger cut of 0.5% is seen as less likely at 27%, there is still a significant probability of further easing in November, with odds currently standing at 52.5%.
Employment data released on Friday also weighed on equity markets, sending all three main stock indices on another decline. The data indicated a softening labor market, but left investors unsure about the extent of the Federal Reserve's upcoming interest rate cuts. Several market analysts support the view that Federal Reserve chair Jerome Powell must cut rates later this month, but also suggest he may be too late for the economy to achieve a soft landing. Technology, Consumer Goods and Consumer Services sectors took the biggest hit sending the US 30, the US 500 and the US tech 100 down by 1.15%, 1.67% and 2.41% respectively
A series of key economic reports are due this week including among others the Sentix Investor Confidence report from the EU, US consumer credit, U.S CPI and PPI numbers, an interest rate statement by the ECB and growth data from the UK.
In other news, the upcoming presidential debate, scheduled for today 9 PM Eastern Time, could prove to be a pivotal event. A survey made by the New York Times shows Trump with a 48% to 47% lead, a margin that falls within the poll's three-point error range, suggesting that the outcome of the November 5 election is still highly uncertain.
The EUR/USD pair has slipped back below 1.1100 as the US Dollar regained strength, even with signs of slowing labor demand in the US.
Uncertainty remains around the US Dollar's near-term outlook following the release of August's Nonfarm Payrolls (NFP) report. The data showed that US employers added 142,000 jobs, falling short of the 160,000 expected but improving from July's revised figure of 89,000. The unemployment rate edged down to 4.2%, in line with expectations, from the previous 4.3%.
In contrast, wage growth in the US picked up in August, adding further complexity to the outlook. Average hourly earnings, a key indicator of consumer spending power, increased by 3.8% year-on-year, above the expected 3.7% and up from July’s 3.6%.
Gold prices eased on Friday, pulling back from near-record highs earlier in the session, as mixed U.S. jobs data fueled uncertainty about the Federal Reserve’s upcoming interest rate decision.
The mixed data has led to speculation about the size of the Federal Reserve's next interest rate cut, with gold markets reacting to the uncertainty.
Lower interest rates are generally favorable for gold, as they reduce the opportunity cost of holding the non-yielding asset. However, the uncertainty surrounding the scale of the Fed's actions has kept gold prices volatile.
Oil prices dropped by almost 2% on Friday, capping off a significant weekly loss as weaker-than-expected U.S. jobs data for August overshadowed price support from OPEC+ producers delaying planned supply increases.
Despite a decline in U.S. crude inventories and OPEC+'s decision to delay supply increases, Brent settled at its lowest since June 2023.
Additionally, oil prices faced downward pressure amid signals that Libya's rival factions might be nearing an agreement to resolve the dispute that has disrupted the country's crude exports. While most exports remain halted, some shipments have resumed from storage.
U.S. stocks fell on Friday, dragged down by a jobs report that showed continued signs of a labor market slowdown, leaving traders uncertain about the Federal Reserve’s next move on interest rates. All three major indexes closed lower with The US 500 and the US 30 recording their steepest weekly drops since March 2023, while the US Tech 100 suffered its largest weekly decline since January 2022.
According to the U.S. Labor Department, employers added 142,000 jobs in August, below analyst expectations, while July’s job growth was revised downward to 89,000. The report has heightened expectations that Fed Chair Jerome Powell will cut interest rates later this month, but it has also raised concerns that the Fed’s timing may be too late to avoid a more severe economic downturn.
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