- The nonfarm payrolls report revealed that US jobs grew by 73,000 in July.
- Market participants moved to price a 90% chance of a Fed rate cut in September.
- The Canadian dollar struggled after Trump imposed a 35% tariff on Canada.
Currency futures held onto gains from the previous session on Monday despite a slight recovery in the dollar. Most ended Friday with gains after the US released a poor monthly employment report that led to a surge in Fed rate cut expectations.
US jobs (Source: Bureau of Labor Statistics)
The nonfarm payrolls report on Friday revealed that US jobs grew by 73,000 in July. This was much smaller than the forecast of 106,000. Meanwhile, the unemployment rate increased to 4.2% as expected. Moreover, the report revealed a massive downward revision of 258,000 jobs for the previous two months. These revisions raised concerns about the state of the US economy.
Soon after the figures, Trump fired the Bureau of Labor Statistics Commissioner Erika McEntarfer. The US president accused her of faking the job numbers. This was a sign that many were shocked by the figures. As a result, the greenback collapsed, and Fed rate cut bets soared.
“Market reactions to Friday night’s events were swift and decisive,” said Tony Sycamore, a market analyst at IG. “Equities and the US dollar tumbled, along with yields.”
After the report, market participants moved to price a 90% chance of a Fed rate cut in September. The drop in the dollar allowed currency futures to rally.
However, the dollar had performed well at the start of the week after Trump’s higher tariffs and after upbeat GDP data.
Meanwhile, the Canadian dollar struggled after Trump imposed a 35% tariff on Canada. Economic concerns weighed on the currency despite a pause during the Bank of Canada meeting. However, the loonie recovered on Friday after the US jobs report.
Elsewhere, the Bank of Japan kept interest rates unchanged as expected. Additionally, policymakers were optimistic about the future of the economy and inflation. This opened the door to a resumption of rate hikes sometime next year.
This week, traders will focus on the Bank of England policy meeting. The BoE will likely cut rates due to poor recent economic data. However, policymakers are also facing higher inflation figures that could impact their tone about future rate cuts. A less dovish tone might support the pound. On the other hand, a dovish tone will weigh on the UK’s currency.