The U.S. Dollar is trading in negative ranges as the week closes with key labor figures that increases the likelihood of the Federal Reserve cutting interest rates for what is left of the year.
Overview
The Buck is currently experiencing turmoil all across the board, hitting its lowest level overall in over two weeks per the Bloomberg Dollar spot Index.
Simply put, negative data has led to natural depreciation. Labor is clearly facing tough times with the Change in Non-Farm Payrolls for August, revealing an addition of just 22K jobs when the expectation was 75K. Additionally, Manufacturing saw a larger contraction in jobs than expected with (-12.0K) vs (-5.0K). In general, the interpretation after high Production Price Index signals is that companies are facing higher costs and this is translating into difficulty holding on to staff as well as being in a position to add personnel.
Odds for a cut for the September 17th Fed meeting are now above 100.0%, basically guaranteeing a 25 basis-point slash and introducing chances that there could be a consideration to cut by 50 basis points. Since indicators are now showing that we are in the midst of a “stagflation” period, it creates a dilemma for Fed members as they weigh what issue is more concerning: the stagnant pace of economic advancement or the dangers of higher inflation. Read more in our September Outlook. Next week’s stats will test guidance as we get both PPI as well as Consumer Price Index numbers.
What to Watch This Week…
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The complete Economic Calendar can be found here.
EUR ⇑
The Euro is rising to levels not seen since mid-July after the labor figures in the U.S. caused markets to be more certain that the Federal Reserve will step in a cut borrowing costs. It is possible that the shared currency has room to grow based on central bank policy divergence emerging as a point of contrast between regions. The European Central Bank is meeting on September 11th and is expected to make arguments for keeping interest rates unchanged. More importantly, global worries are increasing regarding prices getting higher as tariffs become embedded in pricing equations for businesses tied to the supply chain. If European CPI is high, Euro could jump to multi-month highs not seen since first half of the year.
MXN ⇑
The Mexican Peso is also hitting a multi-week high against the Dollar as all currencies gain from the poor jobs’ numbers. Next week will be more packed with data from Mexico gauging inflation as well as Industrial Production. Banxico will meet on September 25th, expecting to reduce interest rates further if inflationary indicators are mild. Anything that seems like price growth has exacerbated may reduce the odds of officials focusing on stimulus and rather show worry over prices. If central bank divergence applies, MXN may have ground to gain as it remains offering high interest rate returns of 7.75%.
