U.S. Dollar Movement Amid Labor Market Data

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar rose in volatile trading on Friday after data showed U.S. employment grew less than expected in August, suggesting only a steady slowdown in the labor market. This may support gradual interest rate cuts by the Federal Reserve.

Nonfarm payrolls increased by 142,000 jobs last month after a downwardly revised 89,000 rise in July, according to the Labor Department’s Bureau of Labor Statistics. Economists had forecast a 160,000 job increase after a previously reported 114,000 gain in July.

Initially, the dollar fell against most major peers following the jobs data release but soon recovered. The U.S. currency, often seen as a safe haven, found support as stocks and other risky assets declined on Friday.

The euro was 0.3% lower against the dollar at $1.108225, after jumping to $1.1155 right after the payrolls report. The Dollar Index, measuring the U.S. currency’s strength against six major peers, was up 0.2% at 101.21.

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, noted that the market is indecisive, as the situation could justify either a 25 or 50 basis point rate cut.

Current trading indicates a 31% chance that the Fed will reduce its policy rate from the current 5.25% to 5.50% range to 4.75% to 5% at the upcoming meeting on Sept 17-18. Before the report, the probability was around 43%, leaning towards a quarter-point reduction.

Karl Schamotta, chief market strategist at Corpay, commented that the U.S. economy seems likely to “gouge the runway” soon, necessitating a more aggressive approach from the Federal Reserve. He perceives a half-point rate cut at the September meeting as unlikely, but acknowledges that the jobs report indicates a significant decline in labor market conditions, supporting speculation of a large rate cut soon.

Against the Japanese yen, the dollar fell 0.7% to 142.42 yen, marking its fourth straight session of losses. The Japanese currency has gained from safe-haven demand and expectations of potential rate hikes from the Bank of Japan.

Over previous months, traders have consistently sold the dollar against various currencies, spurred by concerns about a slowing U.S. economy necessitating significant rate cuts. On Friday, Federal Reserve policymakers hinted at beginning a series of rate cuts, recognizing cooling labor market conditions which may worsen without a policy shift.

Fed Chair Jerome Powell indicated that the focus is shifting from combating inflation to shielding the job market, endorsing an imminent start to monetary easing at last month’s annual economic conference in Jackson Hole.

The pound was about 0.4% lower at $1.3131. With the Bank of England meeting in two weeks, traders perceive minimal chance of a rate cut this month, though a quarter-point reduction is fully priced in for November.

In cryptocurrencies, bitcoin dropped about 4% to a new one-month low of $53,600, as investors steered clear of riskier assets.