Dollar Holds Steady as US Job Market Weakens: What Investors Should Expect for Interest Rate Cuts and Market Impact
SINGAPORE/LONDON – The US dollar remained steady on Thursday amid a volatile week as investors grappled with a fragile bond market and signs of a weakening labor market, reinforcing expectations that the Federal Reserve will cut interest rates later this month.
With the Federal Reserve closely monitoring employment data, Friday’s pivotal jobs report is expected to shape market expectations for the central bank’s upcoming policy decisions. Recent data showed that job openings fell to a 10-month low in July, although layoffs have stayed relatively low.
Market sentiment strongly favors a rate cut, with traders now pricing in a near 100% probability of the Fed reducing rates this month, up from 89% last week, according to CME FedWatch. Expectations also point to a total easing of 139 basis points by the end of next year. The dollar traded slightly higher amid cautious investor sentiment ahead of the payroll report.
The euro remained firm at $1.1655, while the British pound held steady at $1.3445, just above its four-week low from Wednesday. The US dollar index, which measures the greenback against six major currencies, edged up to 98.23. Meanwhile, the Japanese yen weakened, leaving the dollar 0.2% stronger at 148.33 yen.
Several Federal Reserve officials have expressed concerns over the labor market, reinforcing the view that rate cuts are imminent. James Knightley, chief international economist at ING, highlighted the likelihood of significant rate reductions in the coming months due to minimal inflation pressure from the jobs market. He forecast 25 basis point cuts at the Federal Open Market Committee meetings in September, October, and December. The Fed’s next meeting is scheduled for September 16-17.
Attention this week has also focused on the global bond market, where yields on long-term government notes have surged amid growing worries about the fiscal health of major economies including Japan, Britain, and the United States.
“Global bonds recovered some lost ground yesterday, providing temporary relief and helping to stabilize the foreign exchange market,” said Lee Hardman, currency strategist at MUFG.
A much-watched auction of 30-year Japanese government bonds passed smoothly on Thursday, easing investor concerns. Dovish remarks from policymakers contributed to a modest rally in US Treasuries, causing yields to decline. US 30-year bond yields dropped by 1 basis point to 4.888% after reaching 5% on Wednesday, their highest level in approximately six weeks.
Uday Patnaik, head of Asia fixed income and global emerging market debt at Legal & General, noted that rising yields reflect worsening fiscal conditions in some of the largest advanced economies, where debt-to-GDP ratios are exceeding 100%. He pointed out that none of these countries are running a primary surplus, meaning their revenues are insufficient to cover non-interest spending.
Elsewhere, the Australian dollar fell 0.28% to $0.6525, while the New Zealand dollar dipped 0.23% to $0.5865.
— رويترز
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The anticipated US Federal Reserve rate cuts amid a weakening labor market and volatile bond yields signal potential easing of global financial conditions, creating opportunities for Omani businesses to access cheaper financing and stimulate investment. However, the rising debt concerns in major economies pose a risk of global financial instability, urging investors and entrepreneurs in Oman to adopt cautious, diversified strategies and closely monitor global fiscal developments. Smart players should prepare for currency fluctuations and leverage lower borrowing costs to strengthen competitive positioning.
