By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The dollar rose in volatile trading on Friday after data showed U.S. employment growth in August was less than expected but signaled only a steady slowdown in the labor market, likely supporting gradual interest rate cuts by the Federal Reserve.
Nonfarm payrolls rose by 142,000 jobs last month, following a downwardly revised increase of 89,000 in July, the Department of Labor’s Bureau of Labor Statistics said Friday. Economists polled by Reuters had forecast payrolls would rise by 160,000 jobs, following a previously reported increase of 114,000 in July.
The dollar, which initially fell against most major peers after the jobs data release, quickly recovered to trade higher. The U.S. currency, a traditional safe haven, also found support as stocks and other risky assets sold off Friday.
The euro was 0.3% lower against the dollar at $1.108225, rising to $1.1155 immediately after the payroll report was released. The Dollar Index, which measures the strength of the US currency against six major peers, rose 0.2% to 101.21.
“I think the market is really struggling with this because it’s in the middle of a situation that could be used to justify a 25 or 50 basis point rate cut,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.
Traders now see a 31% chance that the Fed will cut its policy rate, now between 5.25% and 5.50%, to a range of 4.75% to 5.0 at its upcoming meeting on September 17-18. %, according to data from the LSEG. Before the report, they had seen about a 43% chance of that outcome, but preferred a quarter-point cut.
“It seems more likely that the U.S. economy will break out of catastrophe in the coming months, warranting an increasingly aggressive response from Federal Reserve officials,” said Karl Schamotta, chief market strategist at payments firm Corpay in Toronto.
“A half-point interest rate cut at the September central bank meeting remains unlikely, but today’s release provided clear evidence of a sharp deterioration in labor market fundamentals and will reinforce expectations that in the coming months at least one major interest rate cut will occur.” he said.
Against the Japanese yen, the dollar fell 0.7% to 142.42 yen, heading for a fourth straight session of losses.
Safe-haven demand and expectations for upcoming Bank of Japan rate hikes have helped support the Japanese currency in recent sessions.
Traders have sold the dollar against other currencies fairly consistently in recent months as concerns have grown that a slowing U.S. economy will require steep interest rate cuts.
Federal Reserve policymakers hinted Friday that they are ready to launch a series of rate cuts at the U.S. central bank’s meeting in two weeks, noting a cooling in the labor market that could accelerate into something more serious if not policy change would take place.
Fed Chairman Jerome Powell signaled that the central bank’s focus is shifting from fighting inflation to preventing labor market deterioration when he strongly announced an impending start to the monetary easing cycle at the annual economic conference in Jackson Hole last month. endorsed.
The pound fell about 0.4% to $1.3131.
The Bank of England will meet in two weeks to set monetary policy. At the moment, the derivatives market shows that traders see very little chance of a rate cut this month, but a quarter-point cut is fully priced in for November.
In cryptocurrencies, bitcoin fell about 4% to a new one-month low of $53,600 as investors avoided riskier assets.
