Markets are looking for clarity on the likely size of a rate reduction at the Fed’s September 17-18 meeting, and whether borrowing costs are likely to be lowered at each subsequent Fed meeting
The dollar dropped to a more than one-year low against the euro and sterling on Wednesday after data showed employers added 818,000 fewer jobs in the year to March than previously thought.
The release comes before a speech by Fed Chair Jerome Powell at the US Fed’s Jackson Hole economic symposium on Friday, which will be watched for any new clues on his view of the labour market.
It probably puts more weight on Powell’s appearance at Jackson Hole, said Vassili Serebriakov, an FX strategist at UBS in New York. It indicates the labour market was not as strong as the Fed believed at the time and has been communicating. But it is less clear what it means for the outlook going forward.
Markets are looking for clarity on the likely size of a rate reduction at the Fed’s September 17-18 meeting, and whether borrowing costs are likely to be lowered at each subsequent Fed meeting.
This is very consistent with the Fed starting to cut rates. But it is harder to say what it means for the pace of easing and other details, Serebriakov added.
Fed officials last month were strongly leaning toward an interest rate cut at their September policy meeting and several of them would have even been willing to lower borrowing costs immediately, as per the minutes of the July 30-31 gathering released on Wednesday.
Traders are now pricing in a 38% chance of a 50bp cut next month, up from 33% early on Wednesday, and a 62% probability of a 25bp reduction, as per the CME Group’s FedWatch Tool.
It got easier for the Fed to lower rates now and through year-end but I do not think the jobs data makes a strong case for 50bps, said Adam Button, chief currency analyst at ForexLive in Toronto.
We know that it was a year of solid economic growth, that company profits were fine and that the economy grew at a good clip for the year ending in March, Button added.
