Despite lower-than-expected job growth, the US dollar shows resilience; traders eye potential rate cuts while interest rates and Treasury yields remain stable. Stocks take a hit, but market rebound prospects remain.
Key points
Nonfarm Payrolls Lower-than-Expected Again
142 thousand jobs were added this August per Nonfarm Payrolls data, a number that falls short of the forecast of 160 thousand. While a step up from July’s rate of 60 thousand, this number still was well below expectations. This was less than half of the rate of the yearly high achieved in March of 310 thousand jobs added. While today’s Nonfarm Payrolls data preceded a brief drop in the value of the US dollar, it has made a rebound to its normal rate, keeping relative stability despite this low data.
US Interest Rates Remain Unchanged as 10YR Treasury Yields Reach Lows
Federal Funds rate projections did not move much in the aftermath of US employment data – high rate cuts this mid-September remain the unwavering expectation of traders and analysts alike. This consistency was likely priced into market expectations preceding the release of Nonfarm Payrolls. Additionally, 10YR Treasury yields have plummeted to a nearly 16-month low of 3.67%, a result likely inspired by bets of heavy rate cuts by the Federal Reserve.
USD Gains on EUR and AUD
US dollar eked out gains against the euro and aussie on what was a two-sided day. EUR/USD weakened to the 1.108 mark, just a day after its one-week high of 1.111. Additionally, USD/AUD trends slightly downwards at around 0.6670, following Governor Michele Bullock’s reiteration of the central bank to continue current rates.
EUR/USD price history
USD/AUD price history
Stocks Continue Lower Following Poor Employment Data
After the Nonfarm Payrolls data release this morning, stocks in the US have failed to hold gains. The S&P 500 has sunk about 1.5%, the Dow Jones losing 350 points, and the Nasdaq down a whole 1.7%. However, with the unemployment rate edging slightly lower to 4.2% there is still high potential for rebound next week despite the poor NFP numbers.
What’s Next for the US Dollar?
Traders are forecasting an almost 40% chance of a 50bps interest rate cut upon reception of poor employment data. If correct, this would leave the new interest rate at 5.0%, the lowest rate as of 2024. If these rate cuts are perceived to lead to higher inflation in the future, investors may expect the dollar’s strength to decline, weakening it in forex markets. However, with its status as a safe-haven currency, any volatility due to this decision can also be overcome.