The U.S. dollar had a tough go of it during the August release window, with heavy selling pressure against all but one G10 currency. Increased concern over the independence of the Federal Reserve from political pressure is a major factor for this drop. Further, increasing pressures for interest rate ‘arbitrage’ are exacerbating the problem. While a recent court ruling made these tariffs illegal, investors are mostly undeterred. They say there is no hope of these tariffs being lifted.
August turned out to be a humbling month for the dollar, surrendering ground to its peers. Fears about eroding Federal Reserve independence grew as odds stacked up in favor of a Fed interest rate cut. This feeling created further short term selling pressure on the greenback, which has retaliated historically in a fairly strong way on every monetary policy shift.
The illegal ruling on tariffs, ruled illegal by a federal circuit court, did not cause a major movement in the value of the dollar. As a result, investors considered the outcome of the ruling unlikely to produce immediate changes to the existing tariff landscape. Consequently, they’ve stayed one step ahead by remaining decidedly bearish. Now all eyes are on the possible changes ahead on economic data. During this last six-month period, the increases have been replaced by historic downward revisions.
In particular, market participants are scrutinizing the job openings figure from the Job Openings and Labor Turnover Survey (JOLTS). These numbers could tell us important stories about the nature of our labor market and its shifting dynamics. The next nonfarm payrolls report will be out this Friday. With an exceptionally weak jobs report for August now in the rearview mirror, this has become the release to watch. Clearly, Federal analysts expect this data to be central in shaping how the Feds change policy in the coming months.
For Treasury yields, higher rates have underpinned the dollar, albeit in a more subdued way with currency flows largely remaining orderly. The gap between U.S. yields and UK yields is stunning. U.S. Treasury yields have been consistent, but the UK has faced a greater degree of mixed fortunes that loom largely over its currency fluctuations.