Karen Brettell
(Reuters) – The dollar fell to its lowest level in more than a year against the euro and sterling on Wednesday after data showed employers created 818,000 fewer jobs in the year to March 2024 than previously thought.
The data was released later than scheduled at 10:00 a.m. ET, causing market confusion and volatile trading.
“This suggests that the labor market was not as strong as the Fed believed and reported at the time. But it is less clear what this means for the future outlook,” said Vassili Serebriakov, a currency strategist at UBS in New York.
“This is very consistent with the Fed starting to cut rates. But what that means for the pace of easing and other details is harder to say,” he added.
Traders will focus on comments by Federal Reserve Chairman Jerome Powell on Friday at the Federal Reserve’s economic symposium in Jackson Hole, Kansas City. Powell will be looking for recent clues about his view on the labor market and whether he refers to Wednesday’s data.
Markets are particularly looking for clarity on the likely size of the interest rate cut next month and whether borrowing costs will be lowered at each upcoming Fed meeting.
According to CME Group’s (NASDAQ:) FedWatch Tool, investors are pricing in a 33 percent chance of a 50 basis point cut, which is little change from the jobs data, and a 67 percent chance of a 25 basis point cut.
“It’s easier for the Fed to cut rates now and it will continue to do so until the end of the year, but I don’t think that’s a strong case for a 50 basis point cut,” said Adam Button, chief currency analyst at ForexLive in Toronto.
“We know that this was a year of solid economic growth, that corporate earnings were strong and the economy grew at a good pace in the year to March,” Button said.
Smaller-than-expected job growth in July and an unexpected rise in the unemployment rate have investors eyeing deeper interest rate cuts amid concerns that the United States is facing an imminent recession.
Those concerns were tempered by improved data, including a robust retail sales report for July and higher-than-expected home price inflation this month.
However, markets remain highly sensitive to employment data as it could show signs of a faster economic deterioration.
The Federal Reserve is scheduled to release the minutes of its July 30-31 meeting on Wednesday.
Employment and inflation data for August will be released after Powell’s speech but before the September meeting.
The latest decline was 0.16% to 101.22, the lowest since Dec. 29. The euro rose 0.11% to $1.1142, its highest since July 2023.
According to UBS’s Serebriakov, the euro may lose strength after its recent rise.
“You don’t see much movement in U.S. interest rates. I don’t think the European data is particularly positive for the euro. So it looks like it’s still a bit of a technical move in FX,” he said.
Sterling rose 0.36% to $1.3076, also its highest since July 2023.
The dollar weakened 0.05% to 145.18 Japanese yen, its lowest level since Aug. 7.
Bank of Japan Governor Kazuo Ueda is expected to discuss the central bank’s decision last month to raise interest rates during his visit to parliament on Friday.
The Bank of Japan will raise interest rates again by the end of the year, according to a Reuters poll released on Wednesday. Those with specific information about the month favored a December hike.
Consumer inflation in Japan rose for a third straight month in July, according to a Reuters poll of 18 economists.
In the cryptocurrency market, bitcoin rose 0.31% to $59,498.
