Future Trading Strategies
Fundamental Analysis

Currency Futures Soar as Dollar Stumbles on Slower US Job Growth

  • The US economy added fewer jobs than anticipated last month.
  • There was a decrease in US unemployment to 3.5%, indicating that the labor market remained tight. 
  • Long-term US Treasury yields reached their highest levels in nine months on Thursday.

On Friday, currency futures rose as the dollar dropped, erasing most of its gains throughout the week. This was in response to the slower growth of US jobs in July, which sparked hopes of a gentle economic slowdown. However, the rise in wages hinted that the Federal Reserve might need to maintain higher interest rates for an extended period.

US job growth (Source: Bureau of Labor Statistics)

US job growth (Source: Bureau of Labor Statistics)

Last month, the US economy added fewer jobs than anticipated. Nevertheless, substantial wage increases and a decrease in unemployment to 3.5% indicated that the labor market remained tight. According to the Labor Department’s household survey, nonfarm payrolls increased by 187,000 jobs last month, falling short of the economists’ forecast of 200,000 in a Reuters survey.

Revisions downward for job growth in May and June indicated a slowdown in labor demand after substantial rate hikes by the Federal Reserve. 

Despite 1.6 job openings for every unemployed individual, the moderation in hiring might signify companies struggling to locate suitable workers. This unexpected softness in job numbers interrupted the week’s surge in Treasury yields and ended the dollar’s recent upward trajectory.

Marc Chandler from Bannockburn Global Forex in New York mentioned that a sharp drop in interest rates led to a short squeeze in foreign currencies and prompted a liquidation of long-dollar positions. 

The euro climbed 0.55% to $1.1004, while the Japanese yen strengthened by 0.51% to 141.81 per dollar.

Long-term US Treasury yields reached their highest levels in nine months on Thursday due to an influx of supply and data reflecting the ongoing resilience in the labor market.

The yen has been sensitive to higher US yields due to the Bank of Japan’s efforts to maintain local interest rates. After the surprise adjustment in the BoJ’s monetary policy the previous week, traders are evaluating how quickly and to what extent it will allow yields to rise.

In addition to dollar weakness, the Australian dollar received a boost from the cessation of Chinese anti-dumping and anti-subsidy tariffs on Australia’s barley imports. This led to improved trade relations between the two partners. As a result, the Aussie gained 0.18% against the greenback, reaching $0.656.