The United States dollar (USD) is down over 19%. That places it now underneath the levels seen in the wake of Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole Economic Symposium on August 22. The dollar is now floating just above 97.50 after having pierced the bottom Bollinger Band. It’s now oscillating in a band of roughly 50 basis points below the 97.95 cap. This transition comes amidst rising speculation about when the Federal Open Market Committee (FOMC) will make its first cut to the federal funds rate. The committee is scheduled to conclude its public meetings on September 17.
Recent U.S. employment data has further fanned the flames of concern in financial markets. A disappointing jobs report is a very big trigger according to our analysts into the speculation. They’re even starting to price in a 50 basis point cut in interest rates. The Bureau of Labor Statistics will soon release a benchmark revision to its establishment survey. Analysts are predicting this update to be even worse, full of all kinds of ugly data. You may recall that last year, this revision led to a dramatic downward revision of 818,000 jobs, swirling increased anxiety around the prospect of a weakening labor market.
The dollar is exhibiting an undertone of consolidation with a softer bias. All of this is following an unwelcoming employment report that was released just before the long weekend. While these economic developments are certainly positive, they are overshadowed by political developments that market participants are even more focused on this week – particularly in the U.S.
U.S. interest rates have recently fallen to their lowest depths in nearly five months. This cut has led to months of overheated speculation about deeper future cuts. Yet other analysts are warning that the narrative being pushed by various markets might be flat out wrong on where the economy is headed. The recent surge in the headline Consumer Price Index (CPI) is the fourth month in a row. That trend may temper hopes for a large rate cut next week. As of now, derivatives markets are pricing in roughly a one in ten chance of the Federal Reserve delivering a 50 basis point cut. But most experts — including the Congressional Budget Office — think that number is inflated, in part because of the CPI’s projected increase.
And notwithstanding that volatility, the greenback has thus far succeeded in holding itself within Thursday’s range. U.S. index futures are all showing a bullish tone as well, showcasing some serious strength in the broader market sentiment. At its recent high last week, the dollar was at JPY149.15, its highest level in over a month. On Thursday, price really consolidated the value that was established. It then faltered to almost JPY146.80 ahead of the weekend as the pace of the labor market deceleration worsened.