The U.S. Dollar is trading at the weakest levels since mid-July, per the Bloomberg Dollar Spot Index, as data revealing softening in the labor sector dramatically increased the chances of multiple interest rate cuts this year.
Overview
Change in Non-Farm Payrolls for July came in at 114K vs. 175K while significantly downwardly revised for June from an original reading of 206K to 179K.
Unemployment Rate rose from 4.1% to 4.3%, the highest in almost three years, while Average Hourly Earnings expanded less than expected. Overall, the weakening of the economy, as highlighted by mid-year numbers, makes it clear that it can use some aid via the lowering of borrowing costs.
September Fed meeting odds for a slash of 25 basis points were up to 167.0% at the time of writing, indicating that there is even a chance for officials to be aggressive for the remainder of the year. A cut for January 2025 is now priced at over 50.0% if cuts are consecutive. The shift to dollar negativity was not felt in the LATAM realm as the Mexican Peso and other currencies from the region dropped.
As the U.S. struggles this bodes poorly for already struggling economies south of the border. Add to it the loss of appeal to the carry trade that gave a lift in 2023. We shall see how much more room the Buck has to lose to G-10 and others and if any comment from Fed members adds fuel to the decline.
What to Watch Today…
- Monex USA Online is always open.
MXN ⇓
The Mexican Peso is down and amongst the few currencies not appreciating over the Buck primarily due to indicators also pointing at softer figures for the fundamentals. The Unemployment Rate in June rose more than expected while Investing plummeted in pace, coming in at a yearly 6.0% instead of the 8.4% estimated, a huge drop from the annual average before at over 18.0% in Q1. The weakness for our neighbor will likely exacerbate as the U.S. business decision-making becomes more restrictive particularly on items like ”nearshoring” and investing in the hemisphere as a whole.
JPY ⇑
The Japanese Yen has climbed to its strongest point since February as the tables have turned for the dollar as well as the situation for the economy. As data forces traders to rethink the Fed’s determination to make a serious “dovish” pivot. Yen also has improved based on chances that the Bank of Japan has the will to increase interest rates again this year. At the moment, all currencies are up against the Buck on average by half percent, but the Yen is up by close to 1.5%, benefitting the most.
