Additionally, the EUR/USD currency pair hit a new short-term ceiling, closing above 1.17 for the first day since late July. This increase is an indication that confidence in the euro’s bullish trend versus the U.S. dollar is growing. This was just shy of the year-to-date high for EUR/USD which was registered at 1.1829. These recent developments in the U.S. money markets are related to increasing market expectations for increased monetary policy accommodation from the Federal Reserve. This change follows closely the profound wisdom imparted during last week’s Bessent tete-e-tete.
In Australia, the labour market bounced back. The employment release revealed that there was a spike of 24,500 jobs in July. The overall unemployment rate made a small tick down from 4.3% to 4.2%. The overall workforce participation rate dropped, from 67.1% to 67%. Together, these dynamics tell a promising yet challenging story about the Australian economic landscape.
Economic Indicators and Currency Movements
The recent closing of EUR/USD above 1.17 is quite the coup for the euro. It has not touched this much since the end of July, suggesting that a change in market sentiment may be taking place. The year-to-date high for the euro/dollar currency pair is 1.1829, emphasizing the euro’s strength against the dollar.
At the same time, U.S. money markets have started to signal a turn in expectations of Federal Reserve policy. First time since Bessent’s presentation that, in September, markets were looking for over a 25 bps rate cut. This major development is a testament to the rapid shift in investor sentiment. Investors are still recalibrating their forecast for future interest rates. This dramatic shift was probably a combination of new economic data and the recent string of jaw-boning by Fed officials.
In remarks that highlight this go-slow mentality, Chicago Federal Reserve President Goolsbee warned against moving too quickly on policy changes. Further, he rightly zeroed in on the services inflation that has been so stubborn as a particularly important development to watch closely by policymakers. Goolsbee’s comments imply that although there is a lot of political pressure to raise rates, the economic fundamentals must be carefully reconsidered.
Australian Labour Market Shows Mixed Results
The latest employment figures from Australia paint a mixed picture of the country’s labour market. That’s a strong sign of job-creation resilience—with the number of jobs increasing by 24,500 jobs in July—despite a slowdown in overall economic growth. During this same time, while total full-time occupations grew by 60,500, part-time jobs dropped by 35,900. This new, very notable shift leads us to the deeper question of what type of job growth we’re seeing and if it’s what our workforce needs.
The unemployment rate in Australia recently fell to 4.2%, down from 4.3%. Further, this unexpected decline points to a hopeful new direction for the country’s long-term economic health. The overall participation rate fell a bit, from 67.1% to 67%, meaning fewer people are looking for jobs, a concerning signal. This drop might indicate deeper problems that have the potential to shape future labour market trends.
Further, wage growth has stayed pretty strong in Australia, with wages growing 4.5% annually. The continued expansion points to the persistent strain of the labor market. It might lead to even greater inflationary worries as companies face growing wage pressures.
Future Outlook and Market Sentiment
Further out, all eyes on market participants are glued to forward-looking sentiment towards the pace of economic activity. The RICS (Royal Institution of Chartered Surveyors) recently declared there to be a chance at one final move early next year. This may make further tightening of monetary policy likely as the state of the economy continues to change.
At the 12-month horizon, contributors are at a net +8% expecting an increase in sales activity. With the right focus on implementation, this optimism stands to power a more inclusive economic recovery. High-frequency measures point to near-term activity being pretty much a wash.
In the capital markets, U.S. Treasuries experienced a significant rally. Even so, yields in most maturities across the curve fell 5-6 basis points, more or less in a parallel shift. This movement suggests increased investor demand for safer assets amid evolving economic conditions and uncertainty surrounding future interest rate decisions. Futures markets are now heavily favoring a “skip” at the next September meeting. After that, there’s a 100% chance of at least a 25 basis point rate cut in November.