The dollar index (DXY00) is up by +0.21% today. The dollar is strengthening today on the stronger-than-expected US Aug payroll report, which boosts the chances that the Fed will raise interest rates this year. The chance of a Fed rate hike at the Sep 15-16 FOMC meeting rose to 61% from 52% before the report. Gains in the dollar are limited with today’s -1% fall in crude oil prices, which eases inflation expectations, a dovish factor for Fed policy.
US Aug nonfarm payrolls rose +162,000, stronger than expectations of +55,000 and the largest increase in 5 months. Also, July payrolls were revised upward to show an increase of +21,000, stronger than the previously reported decline of -23,000. The Aug unemployment rate remained unchanged at 4.1%, in line with expectations.
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US Aug average hourly earnings rose +0.3% m/m and +3.1% y/y, right on expectations.
The markets are discounting a 61% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16.
EUR/USD (^EURUSD) is down by -0.11% today. The euro is under pressure after today’s economic news showed Eurozone July retail sales unexpectedly fell by the most in two years. Losses in the euro accelerated after the dollar rallied on the stronger-than-expected US Aug payroll report. Losses in the euro are limited after German July factory orders rose more than expected.
Eurozone July retail sales unexpectedly fell -0.6% m/m, weaker than expectations of +0.2% m/m and the biggest decline in two years.
German July factory orders rose +2.5% m/m, stronger than expectations of +0.3% m/m.
The markets are discounting a 99% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
USD/JPY (^USDJPY) is up by +0.19% today. The yen is moving lower after today’s Japanese economic news showed July household spending fell more than expected by the most in 2.5 years. Also, today’s slide in Japan’s JGB 10-year bond yield to a 1-week low of 2.898% weakened the yen’s interest rate differentials. The yen added to its losses today after the dollar rallied on the stronger-than-expected US Aug payroll report.
The yen also continues to suffer from weak interest rate differentials, with the BOJ’s current policy rate of 1.00%, well below the Fed’s federal funds rate target range of 3.50%-3.75%.
