Daily Market Update

Cooling Labor Drives Dollar Down

September 01, 2023

Ahead of the Labor Day holiday on Monday, the United States Dollar heads into the long weekend on the back foot after mostly negative employment data was released this morning.


The change in non-farm payrolls came in higher than expected at 187,000 for the month of August, but the prior month’s number was revised down substantially for a net two-month revision of -110,000. The unemployment rate in the US jumped to 3.8%, quite the rise from July’s 3.5%. Stock futures are up on the news and USD is losing ground across the board.Markets are clearly hoping that this dovish release will keep the Federal Reserve at bay. Odds of one final rate hike by November are now solidly below 50%, a marked decline from last week. It’s important to note that this unemployment number is still close to the historically low figures the US posted through the beginning of this year and does not necessarily flash real warning signs for the health of the US labor sector, but rather falls more in line with the “labor market softening” that the Fed has been looking for as a signal it can end its tightening campaign.When taken in conjunction with the several other major data releases from this week, there are definite signs of cooling in the US economy. There is little risk domestically of entering true contractionary territory, like many other G10 nations face, but we still see some downside risks for USD through the remainder of this year as the Fed likely now has license to wrap up its tightening cycle earlier than those of most other central banks. Interest rate divergence will continue to be a major driver of pricing through this year, and the Buck is unlikely to benefit.


What to Watch Today…

  • Monex USA will be closed Monday, September 4 in observance of the Labor Day holiday
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Japanese Yen has regained a further half a percent against USD this morning for a gain of nearly 3 percent from its weakest point Monday, one of the best performers in the G10. As the US economy shows signs of cooling and one final 25 basis point hike from the Fed becomes increasingly unlikely, the Yen is moving out of the “danger zone “ of intervention territory. Finance Minister Shunichi Suzuki re-emphasized overnight that the government is still closely watching the movement of USD/JPY, signaling again the government’s willingness to intervene should JPY lose ground again.


The Loonie posted a smaller gain against USD than most majors but a gain nonetheless this morning to the tune of a quarter of a percent, even after Canadian GDP showed a surprising contraction in the nation’s economy through the second quarter of this year. CAD strength in the face of poor economic data from its own country serves to highlight the importance of readings from the US in the pricing of currencies across the world. It is increasingly likely that the Bank of Canada and the Federal Reserve will keep their interest rates in lockstep for the near future.

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