U.S. Dollar Plummets Due to Unimpressive JOLTS Data Bolstering Federal Reserve Rate Reduction Probability

In today's financial landscape, several significant events have unfolded, shaping the direction of various markets and currencies.

Equity markets have experienced a rebound, leading to a reduction in liquidity demand for the dollar. This shift has had a ripple effect, with the dollar index (DXY00) decreasing by -0.35%. The weaker dollar and lower T-note yields are supportive for metals prices, as evidenced by the rally in gold prices. December gold is up +27.60 (+0.77%), with December silver following suit, increasing +0.318 (+0.76%).

The gold market has also been influenced by political uncertainty, particularly in France, where demand for gold as a safe-haven has risen.

In the realm of monetary policy, Federal Reserve (Fed) Governor Christopher Waller has suggested that the Fed should start cutting interest rates at the next meeting and make multiple cuts in the coming months. Waller also stated that the fed funds rate is above the neutral rate, implying that monetary policy is restricting the economy. Meanwhile, St. Louis Fed President Alberto Musalem believes the current policy rate is consistent with full employment and core inflation above the Fed's 2% target. Waller expects inflation to move "much closer" to the Fed's goal in six or seven months.

The Fed's interest rate decisions have influenced the dollar's trajectory, with losses in the dollar accelerating as the chances for a Fed rate cut later this month increased.

Across the Atlantic, the European Central Bank (ECB) swaps are pricing in a 1% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting. The EUR/USD is up by +0.32%, supported by dollar weakness and a stronger-than-expected Eurozone July PPI report.

The economic landscape in the US has also seen some fluctuations. The Jul JOLTS job openings in the US fell to a 10-month low of 7.181 million, lower than the expected 7.380 million. Meanwhile, US Jul factory orders fell -1.3% m/m, meeting expectations and marking the second straight month of decline.

Diplomatic efforts to end the war in Ukraine remain elusive, with Germany and France calling for secondary sanctions on Russia. Russian President Putin and Ukrainian President Zelensky are unlikely to meet, according to German Chancellor Merz.

In Asia, the Japan Aug S&P services PMI was revised upward to 53.1, indicating continued growth in the services sector. Conversely, the Eurozone Aug S&P composite PMI was revised downward to 51.0, suggesting a slight slowdown in economic activity. The USD/JPY is down by -0.17%.

These developments underscore the dynamic and interconnected nature of global financial markets and central bank policies. As these events continue to unfold, investors and market participants will closely monitor these trends to inform their investment strategies.

U.S. Dollar Plummets Due to Unimpressive JOLTS Data Bolstering Federal Reserve Rate Reduction Probability