- The US dollar collapsed on Friday after data revealed that the US economy added 22,000 jobs in August.
- The CAD fell on Friday after poor employment data from Canada.
- The yen fluctuated on Monday as traders absorbed Sunday’s news of Prime Minister Shigeru Ishiba’s plans to resign.
Currency futures extended gains on Monday as the dollar fell amid increased pressure on the Federal Reserve to lower borrowing costs. Downbeat employment figures on Friday sent the dollar down against its peers. Meanwhile, market participants are gearing up for crucial US consumer inflation data later in the week.
Dollar Index (Source: Bloomberg)
The US dollar collapsed on Friday after data revealed that the US economy added 22,000 jobs in August. The number came in well below the forecast of 75,000. At the same time, the unemployment rate increased from 4.2% to 4.3% as expected. The numbers raised concerns about a rapid slowdown in the labor market that could force the Fed to deliver a massive rate cut this month.
In July, some top government officials had suggested that policymakers lower rates by 50 bps. Such a move would compensate for their delays in lowering interest rates to support the economy. The latest numbers could convince the Fed to do just that. Such a move would weigh heavily on the dollar and boost currency futures.
Meanwhile, the Canadian dollar was an outlier on Friday as it fell against the dollar due to poor domestic data. Canada’s labor market performed poorly, losing 65,500 jobs. At the same time, the unemployment rate rose to 7.1%, beating the forecast of 7.0%. After the report, traders were pricing a 90% chance of the Bank of Canada lowering borrowing costs in September. Still, the loonie gained on Monday as focus shifted to the Fed’s outlook.
Elsewhere, the yen fluctuated on Monday as traders absorbed Sunday’s news of Prime Minister Shigeru Ishiba’s plans to resign. This will likely lead to increased political and monetary policy uncertainty in Japan with a new leader.
“The probability of an additional rate hike in September was never seen as high to begin with, and September is likely to be a wait-and-see,” Hirofumi Suzuki, chief currency strategist at SMBC, said of the BOJ’s next move.
“From October onward, however, outcomes will in part depend on the next prime minister, so the situation should remain live.”
This week, traders will pay close attention to the US CPI report, which will show the state of inflation. The outcome will continue to shape the outlook for Fed rate cuts.
