FED rate hikes and inflation this year are at record highs. The U.S. jobs data released on Friday were truly unexpected by market participants, which had andwill still have consequences.
According to the July report on new jobs and total unemployment, the U.S. economy gained 528,000 jobs against a forecast of 250,000, and more importantly, the June numbers were also revised upward to 398,000.
The unemployment rate fell to 3.5% from 3.6%, which was also a surprise since it had been expected to remain at 3.6%. Another positive piece of news was the average hourly earnings up 0.5% month-over-month and 5.2% year-over-year. Also, upward revisions were made to this indicator for the previous period under review.
Why did the overall previously positive sentiment in the markets change so drastically? It is connected with the fact that earlier the data showing the slowdown of the number of new jobs in the USA might have become the reason for the Federal Reserve’s decision to pause in raising interest rates in August, and in September to continue the cycle with a noticeably lower growth rate, for example at 0.25% per month.
Here the main reason for such a scenario was the situation in the labor market. The Fed has an opportunity to continue the sharp FED rate hikes this year, not just to limit the growth of inflation, but to make it go backwards.
Such a change in sentiment could put pressure on demand for stocks of companies, which always have trouble growing if the Central Bank conducts aggressive interest rate hikes. But in this case, the dollar would be supported.
There is also a possibility that the Fed may not change its plans to relieve pressure by raising rates, assessing the current situation in the economy as positive and the inflation rate as the maximum, which may stop and go in the opposite direction in the near foreseeable future, and without continuing aggressive rate increases.
As yen nears 150/$, Japan says watching FX moves with ‘strong sense of urgency’
© Reuters. Japan’s new Chief of Cabinet Secretary Matsuno Hirokazu announces new cabinet members at a news conference in Tokyo, Japan October 4, 2021. REUTERS/Kim Kyung-Hoon/File Photo
By Tetsushi Kajimoto
TOKYO (Reuters) -Japan’s key economic ministers kept investors wary of currency market intervention, warning that authorities were watching with a “strong sense of urgency” as the yen slid closer to the 150 per dollar level on Monday, its weakest in nearly a year.
Last September, Japanese authorities conducted their first intervention in 24 years, when the yen weakened past 145 per dollar, and speculation has mounted that they will step in again with the yen under constant pressure due to a yawning yield gap against the dollar.
“As I said before, we are closely watching market moves with a strong sense of urgency,” Finance Minister Shunichi Suzuki told Reuters on Monday.
The finance minister has jurisdiction over currency intervention, but he declined to comment on whether it was a possibility at this point.
Chief Cabinet Secretary Hirokazu Matsuno echoed his stance, telling reporters that the government would continue to monitor currency moves with “a high sense of urgency”.
He also repeated that it is important that the currency market moves in a stable manner reflecting fundamentals.
Japanese officials in a recent few weeks have said they would not rule out any options on intervention, but they have yet to utter the tell-tale phrases they used before unleashing intervention last year.
Back then they spoke of being ready to take “decisive steps” and were “deeply concerned” on the yen’s weakening.
Investors believe an increase in the speed of the yen’s depreciation would be more likely to trigger intervention than a move past any specific level.
A fundamental reason for the yen’s weakness, however, is the divergent monetary policies being conducted by the Bank of Japan and the U.S. Federal Reserve.
While there is market speculation that the Fed could raise interest rates yet again before the year end, the Japanese central bank appears hesitant about shifting away from the ultra-loose policy it has pursued for years in a effort to conclusively break the Japanese economy free of deflation.
Dollar on track for best quarter in a year
© Reuters. FILE PHOTO: Japanese yen and U.S. dollar banknotes are seen with a currency exchange rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration/File Photo
By Karen Brettell and Amanda Cooper
NEW YORK/LONDON (Reuters) – The dollar was on track to post its biggest quarterly gain in a year on Friday and gains for the 11th consecutive week as investors priced in the likelihood of a still solid economy and higher rates for longer.
The greenback retraced most earlier losses against a basket of currencies to be only slightly lower on the day, following data that showed that U.S. consumer spending increased in August, but underlying inflation moderated, with the year-on-year rise in prices excluding food and energy slowing to less than 4.0%.
“Prices are higher on a monthly basis, but overall, inflation is moving lower. It’s good news for the market because the Fed is looking at the core rate,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
The dollar has gained on expectations that the U.S. economy will remain more resilient to higher interest rates and oil prices than other economies, after the Federal Reserve last week warned it may hike rates further and is likely to hold them higher for longer.
The , which tracks the U.S. currency against six others, fell 0.05% to 106.09 on Friday and is track to end the quarter up 3.13% and post an 11th straight weekly rally – its longest such run in nine years. It is down from a 10-month high of 106.84 on Wednesday.
Despite weaker levels on Thursday and Friday some analysts see the greenback as likely to continue to outperform.
“We view this dollar weakness as corrective in nature and is most likely driven by quarter-end rebalancing,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a note. “We’re not sure how long this correction lasts but investors should be looking for an opportunity to go long dollars again at cheaper levels.”
Meanwhile, a partial government shutdown is looming, which could affect the release of economic data and potentially dent economic growth.
Hardline Republicans in the U.S. House of Representatives on Friday rejected a bill proposed by their leader to temporarily fund the government, making it all but certain that federal agencies will partially shut down beginning Sunday.
A government shutdown would “undermine” U.S. economic progress by idling key programs for small businesses and children, and could delay major infrastructure improvements, U.S. Treasury Secretary Janet Yellen said on Friday.
The dollar rose 0.06% to 149.41 Japanese yen. It is down from an 11-month high of 149.71 on Wednesday. The greenback is up 3.54% against the yen this quarter, following an 8.66% gain last quarter.
The yen remains in focus as it trades near the 150 level, which is viewed as potentially spurring intervention from Japanese authorities.
Core inflation in Japan’s capital slowed in September for the third straight month mainly on falling fuel costs, data showed on Friday.
The euro gained 0.10% on the day to $1.0578, but is set for its worst quarter against the dollar in a year, with a 3.08% decline. The single currency has bounced from an almost nine-month low of $1.0488 on Wednesday.
Sterling rose 0.04% to $1.2206, having this week hit its lowest since March 17, after data on Friday showed Britain’s economic performance since the start of the COVID-19 pandemic has been stronger than previously thought.
The British currency is on track for a quarterly loss of 3.85% against the U.S. dollar, the worst performance in a year.
Currency bid prices at 3:00PM (1900 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 106.0900 106.1600 -0.05% 2.512% +106.2400 +105.6500
Euro/Dollar $1.0578 $1.0567 +0.10% -1.29% +$1.0617 +$1.0558
Dollar/Yen 149.4100 149.3000 +0.06% +13.95% +149.5000 +148.5300
Euro/Yen 158.05 157.74 +0.20% +12.65% +158.3300 +157.4600
Dollar/Swiss 0.9153 0.9152 +0.02% -1.01% +0.9163 +0.9093
Sterling/Dollar $1.2206 $1.2202 +0.04% +0.93% +$1.2271 +$1.2181
Dollar/Canadian 1.3554 1.3487 +0.50% +0.04% +1.3576 +1.3417
Aussie/Dollar $0.6440 $0.6428 +0.18% -5.53% +$0.6501 +$0.6421
Euro/Swiss 0.9682 0.9667 +0.16% -2.15% +0.9692 +0.9646
Euro/Sterling 0.8664 0.8659 +0.06% -2.04% +0.8680 +0.8643
NZ $0.6001 $0.5961 +0.69% -5.47% +$0.6049 +$0.5964
Dollar/Norway 10.6640 10.7230 -0.30% +8.94% +10.7370 +10.5810
Euro/Norway 11.2823 11.3328 -0.45% +7.52% +11.3460 +11.2225
Dollar/Sweden 10.8979 10.9151 -0.04% +4.71% +10.9371 +10.8190
Euro/Sweden 11.5286 11.5336 -0.04% +3.40% +11.5585 +11.4763
ECB proposes legal framework for digital euro rollout by 2027
In a significant move towards digitization, the European Central Bank (ECB) under the leadership of Christine Lagarde has proposed a legal structure for the introduction of a Central Bank Digital Currency (CBDC) across the 20 member states of the Eurozone. The ECB aims to roll out the digital euro by 2027, as reported on Friday.
The digital euro, unlike traditional banknotes, will not offer complete anonymity, according to Lagarde. Her statement raised concerns among Members of the European Parliament (MEPs) over user data privacy. To address these worries, Lagarde clarified that while commercial banks—acting as conduits for the digital euro—would have access to transaction data, the ECB itself would not be privy to such details.
This proposal marks a significant step in the ECB’s efforts to modernize and digitize currency across the Eurozone. While it acknowledges potential privacy concerns, it also maintains a clear delineation between commercial banks’ access to transaction data and ECB’s role in managing the digital currency. As this process unfolds, further clarification and discussion on data privacy and management are expected in order to ensure user trust and smooth implementation of the digital euro by 2027.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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