- US employers hired 142,000 more workers, missing estimates of 160,000.
- The US unemployment rate dropped from 4.3% to 4.2%.
- The annual US consumer inflation figure could ease from 2.9% to 2.6%.
Most currency futures were on the back foot on Friday as the dollar whiplashed after a mixed monthly jobs report. The greenback ended higher as labor market data further eased fears of a recession and pointed to a gradual Fed rate cutting cycle.
Last week, the US released several economic reports that gave an ambiguous picture of the economy. At first, manufacturing PMI data renewed fears of a recession. However, later, investors calmed down as data showed a resilient services sector. Meanwhile, employment figures before the NFP showed weakness in the labor market. Job openings fell in August, indicating a drop in demand for labor. Meanwhile, private employment came in lower than expected.
NFP revision (Source: Bureau of Labor Statistics)
Therefore, before Friday, all signs showed a decline in the labor market, increasing the likelihood of a poor nonfarm payroll report. However, there were weaknesses and pockets of strength. July figures were revised lower to show weaker job growth. Meanwhile, employers hired 142,000 more workers in August, missing estimates of 160,000.
However, the unemployment rate dropped from 4.3% to 4.2%. At the same time, wage growth remained steady, with average hourly earnings beating forecasts. Consequently, although the labor market is cooling, it is doing so steadily. This means that the Fed can implement small rate cuts.
After the employment data, investors lowered the likelihood of a 50-bps rate cut from 43% to 31%, boosting the dollar.
The next major event in the US is the release of the Consumer Price Index report. Inflation has behaved well recently, moving closer to the 2% target. Economists expect the monthly figure to increase by 0.2%, the same increase from the previous month. Meanwhile, the annual figure could ease from 2.9% to 2.6%.
Such an outcome would give policymakers more confidence in lowering borrowing costs. Softer-than-expected figures could raise the likelihood of a massive Fed rate cut. On the other hand, a jump would mean a small rate cut.
The Canadian dollar especially suffered as Canada’s employment data revealed further deterioration. The unemployment rate jumped to 6.6%, raising the likelihood of a significant BoC rate cut. However, the yen was an outlier as BoJ rate hike optimism kept it stronger than the dollar. BoJ policymakers sounded more hawkish last week despite caution about market volatility.
