Fundamental Analysis

Currency Futures Take a Dive Following US Jobs Report

  • The August jobs report showed that employers added 187,000 jobs, beating expectations.
  • The US unemployment rate ticked up to 3.8%.
  • There is a 93% chance that the Fed will keep rates unchanged in September.

Currency futures fell on Friday after the US jobs report. The dollar rose against the euro and Japanese yen due to a robust August jobs report, despite some concerning signs.

US payrolls (Source: Bureau of Labor Statistics)

US payrolls (Source: Bureau of Labor Statistics)

In August, employers added 187,000 jobs, beating the expected 170,000 increase. However, July’s data was revised downward to show 157,000 jobs added, down from the previously reported 187,000.

The unemployment rate climbed to 3.8%, higher than the expected 3.5%. Meanwhile, average hourly earnings only rose by 4.3% for the year, falling short of the anticipated 4.4% gain. 

Michael Arone from State Street Global Advisors in Boston noted, “The jobs report strikes a balance. The labor market softens just enough to deter the Fed, yet remains strong enough to ward off a recession.”

According to the CME Group’s FedWatch Tool, Fed funds futures traders now predict a 93% chance that the Federal Reserve will maintain rates in September, with only a 36% likelihood of a hike in November.

Notably, Fed Bank of Cleveland President Loretta Mester emphasized the continued strength of the US labor market.

Special circumstances affected the August jobs report, including a Hollywood actors’ strike resulting in a 17,000 job decrease in the motion picture and sound recording industries. Another is the bankruptcy of trucking firm Yellow, which caused 37,000 job losses in the truck transportation sector. Excluding these one-time factors, payrolls would have risen by approximately 241,000 in August.

Other data revealed that US manufacturing contracted for the 10th consecutive month in August, but the rate of decline slowed, suggesting a possible stabilization of the sector at lower levels.

Meanwhile, European Central Bank policymaker Boris Vujcic mentioned that weaker economic growth could lead to faster Eurozone inflation reduction. Still, a resilient labor market continues to drive rapid wage growth, creating upward price risks.

ECB policymaker Francois Villeroy de Galhau also stated that the ECB has various options at its next interest rate meeting, even though interest rates are near their peak, and there are indications that underlying inflation has reached its highest point.

Money markets are currently estimating a 79% likelihood that the ECB will maintain rates at its September meeting.