The US Jobs Report came in with another surprising outcome, leading the US Dollar to decline across the board, as markets got more evidence that the Federal Reserve rate hike cycle might be over. However, the dollar bounced back across the board and closed the week above 104.0 once again. In today’s report, we will explain why and whether this move is short-lived.
Unemployment at the highest since 2022
The US Unemployment Rate increased sharply to 3.8% up from 3.5%, while it had been anticipated to remain stable, according to Reuters. Such an increase comes with a higher participation rate, which increased to 62.8% up from 62.6%.
NFP higher after the revisions
The US economy added 187K new jobs in August, slightly higher than the 170K estimated. However, the two-month payroll net revision showed a decline of -110K jobs. This revision makes August reading the highest number of new jobs created since May.
The Average Hourly Earnings declined as expected to 4.3% down from 4.4% during the same period, while the MoM increased less than expected, rising by 0.2% instead of the 0.3% estimated, which means there is no wage inflation pressure, according to CNBC.
Fed Funds Futures
The data has led the Fed Fund Futures to move in a dramatic way. Currently, September’s probability for a rate hike might be less than 6%, while November’s probability probably declined from over 60% to 35%. This means that the market might be pricing in that the Federal Reserve rate hike cycle is over.
Why did the dollar bounce back?
After the NFP announcement, the ISM Manufacturing PMI data was announced, which showed a mixed outcome.
First, the Manufacturing PMI jumped to 47.6 up from 46.4, higher than the 47.0 estimated. But the main concern was in the Prices Paid, which jumped to 48.4 up from 42.6, which is the highest level since April of this year, increasing the fears of another wave of inflation pressure.
Now the question is, will this move continue? I believe that most probably it won’t, given the fact that the amount of evidence that the Fed rate hike cycle might be over is much more than just a single economic release. This is also proved by the Fed Fund Futures which continues to show no rate hike in September or November. In fact, the first rate cut has now moved to May instead of June.
DXY near resistance once again
The Dollar Index recovered its weekly decline after the ISM Manufacturing PMI data, nearing its 104.40 resistance area once again, which should be watched carefully over the next few days. The area between 104.40 and 104.70 remains the key for this week. A break above that area would be a clear sign that the upside retracement has more room to go. Yet, it needs to break that area with a clear weekly close. Otherwise, our bearish outlook might remain unchanged until further notice.
Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.
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