Dollar Struggles to Extend Gains After Strong U.S. Jobs Report

The U.S. dollar struggled to build on Fridays gains at the start of the new week, even after a stronger-than-expected U.S. employment report pushed interest-rate expectations higher.

U.S. nonfarm payrolls increased by 162,000 in August, well above the 56,000 jobs expected by economists. The unemployment rate remained at 4.1%. The initial reaction sent the dollar and Treasury yields higher, but part of the currency move faded soon afterward.

By September 7, the dollar remained relatively soft against several major currencies.

Contents

01

Strong Jobs Data Fails to Deliver a Lasting Dollar Rally

02

Inflation Data Becomes the Next Test

03

About WikiFX

Strong Jobs Data Fails to Deliver a Lasting Dollar Rally

The latest employment figures revived expectations that the Federal Reserve could raise rates at its September meeting.

Interest-rate futures were pricing in roughly a 57% probability of an increase after the jobs report. Despite that shift, the dollar failed to gain sustained momentum.

The reaction suggests that stronger employment data alone has not been enough to establish a new direction for the currency.

The dollar index remained broadly steady, while the euro and British pound showed limited movement. The Japanese yen gained more than 0.2% against the dollar as expectations for higher Japanese interest rates continued to support the currency.

Inflation Data Becomes the Next Test

Attention in the forex market is now moving from employment to U.S. inflation.

The August jobs report strengthened the case for keeping monetary policy tight, but the next inflation readings are likely to carry more weight in determining whether the Federal Reserve actually changes rates later this month.

That leaves dollar pairs sensitive to shifts in rate expectations rather than the employment figures alone.

USD/JPY is particularly active in this environment. The yen has strengthened sharply from its recent lows as expectations for a Bank of Japan rate increase have risen, creating a different rate story on each side of the pair.

For EUR/USD and GBP/USD, the dollars inability to extend its post-payroll gains has kept both pairs relatively stable heading into the new week.

The next major move is likely to depend on whether inflation data confirms the tighter rate outlook implied by the latest employment figures.

About WikiFX

WikiFX is a global forex information and broker verification platform. It provides foreign-exchange market updates, broker profiles, regulatory records, licence information and risk alerts, covering both market developments and the regulatory environment surrounding forex trading.