Dollar Weakens as Markets Question the Fed
The US dollar weakened during Friday's trading (August 7), heading for a second consecutive week of declines. The dollar index fell approximately 0.4% to the 99.54 level after disappointing US labor data caused markets to scale back expectations for a Federal Reserve interest rate hike.
July Nonfarm Payrolls fell by 23,000 jobs, a stark contrast to the projected gain of 85,000. Data for May and June were also revised downward by a combined 103,000 jobs. Although the unemployment rate dropped to 4.1%, the report indicated that labor market conditions were beginning to lose momentum.
The dollar's weakness boosted other major currencies. The EUR/USD pair rose about 0.4% to 1.1568, and GBP/USD strengthened 0.3% to 1.3502, while USD/JPY fell roughly 0.6% to 157.48 as the yen regained support.
The Fed now faces a dilemma between a weakening labor market and the risk of persistent inflation. Some Fed officials had previously favored a rate hike at the July meeting, but the weak NFP figures have made markets increasingly skeptical that monetary tightening is imminent.
The yen also retained much of the strength gained following the joint intervention by Japan and the United States the previous week. The USD/JPY pair held in the 157 range, having previously reached around 164 per dollar—the yen's weakest level in decades.
Newsmaker Analysis: The negative NFP data has exerted significant pressure on the dollar by dampening expectations for a Fed rate hike. If subsequent labor and inflation data continue to soften, the DXY could remain below 100, paving the way for the euro, pound, and yen to strengthen while providing a positive boost for gold. (arl)
Source: Newsmaker.id
