A Report by CYS Global Remit Counterparty Sales & Alliance Unit
The U.S. dollar has dropped to its lowest in over a year against the euro and pound, impacted by weaker job data revealing 818,000 fewer jobs than previously estimated from March 2023 to March 2024. This has shifted market focus to Federal Reserve Chair Jerome Powell's speech at the upcoming Jackson Hole symposium.
Market Edge on Powell’s Speech
The revised employment figures cast doubt on the labour market's strength, raising anticipation for Powell’s insights on potential Federal Reserve actions. According to UBS FX strategist Vassili Serebriakov, this adds weight to Powell’s appearance at Jackson Hole and raises questions about future economic conditions and rate cuts.
Fed Leaning Toward September Rate Cut
Federal Reserve minutes indicate a strong inclination to cut interest rates in September. Adam Button from ForexLive commented that recent data supports rate cuts, but not necessarily an aggressive 50-basis-point reduction. Despite economic concerns, strong retail sales and higher inflation rates in July mitigate fears.
Dollar's Outlook and Pressure
The dollar index fell 0.33% to 101.03, its lowest since December 2023, with the dollar losing about 4% since July due to weaker economic activity. Analysts at Capital Economics anticipate continued dollar pressure due to unfavourable interest rate differentials and global risk appetite.
The current economic landscape suggests the dollar may weaken further as the Federal Reserve potentially loosens policy more aggressively than other central banks, leading to declining short-term interest rate differentials.
Conclusion
The employment data revision has heightened expectations for Powell’s Jackson Hole speech, signalling possible Federal Reserve actions. As rate cut pressure mounts amid a weakening labour market, the dollar's future remains uncertain with further declines predicted.
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