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U.S. Dollar Stumbles as Softening Economic Data Casts Shadow on Fed’s Tightening Cycle

Market Update - Daniel Ang The Accidental Trader Traders Academy International 7

The U.S. Dollar wavered on Tuesday after a Labor Day respite, as market participants digested signs of a cooling American job market, tempering bets on a prolonged monetary tightening from the Federal Reserve.

The greenback nudged 0.1% lower to 104.14, yet lingered close to its two-month peak of 104.44 hit on August 25. The Dollar Index chalked up a 1.7% monthly gain in August, snapping its two-month descent.

Parsing the Labor Data

Last Friday’s employment figures pointed to a mixed landscape. While job growth exhibited some resilience in August, the unemployment rate ticked up to 3.8%, accompanied by softer wage gains. Additionally, the economy added 110,000 fewer jobs than earlier projected in June and July, according to the Department of Labor.

A Soft Landing for the U.S. Economy?

Other economic indicators, including a moderating inflation rate and easing labor market, contribute to a nuanced narrative. These data streams reinforce the notion of a U.S. economy headed for a “soft landing,” contrary to abrupt deceleration fears.

Global Forex Update

  • EUR/USD: Advanced 0.2% to 1.0793, steadying after a 10-week low last week.
  • GBP/USD: Gained 0.3% to reach 1.2627, buoyed by U.K. Finance Minister Jeremy Hunt’s optimistic inflation outlook for 2023 and an economy recovering faster than anticipated.
  • USD/JPY: Rose marginally to 146.39, lingering near the psychologically significant 145 level. Japan’s Ministry of Finance remains vigilant for any alarming currency moves.
  • AUD/USD: Climbed 0.2% to 0.6465, as traders await the Reserve Bank of Australia’s policy decision, expected to maintain its official cash rate at 4.10%.
  • USD/CAD: Increased 0.14% to 1.36, with the Bank of Canada likely to hold rates at its upcoming meeting.

Commodities Corner

Gold prices stood firm, bolstered by the Dollar’s minor pullback, with spot gold hovering at $1,939.61/oz. Oil prices edged higher, anticipating OPEC+ to maintain its tight supply chain, led by Saudi Arabia’s voluntary output cuts.

Crypto Doldrums

In the crypto-arena, Bitcoin and Ethereum stagnate as the U.S. SEC delays its decision on seven Bitcoin ETF proposals. Bitcoin was last seen trading at $25,790, while Ethereum marked time at around $1,626.

What to Watch

Traders have set their sights on a slew of speeches by Federal Reserve officials this week, aiming to glean clues about the Central Bank’s next move in its policy meeting scheduled for September 19-20.

Overall, the global currency markets and commodities are in a delicate balance, swayed by softening U.S. economic data and global economic signals. As central banks across the world reevaluate their policies, traders keenly await the Federal Reserve’s next step amid a cloud of economic uncertainties.

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