The dollar may well start the week on the back foot as Friday's surprisingly weak employment data drew yet further question marks over the Federal Reserve's (Fed) next move. The Fed have been setting the scene for potential intervention via an interest cut within this year with numbers gradually painting the picture of a slowdown.
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But last week's non-farm payroll release, showing that just 75k new jobs had been created, has led many to believe the process might well have to be accelerated. The market's instant loss of faith in the greenback was instantly visible, with the EUR/USD interbank rate breaking through the 1.13 mark for the first time since mid April, despite the European Central Bank making it clear they will be bringing their own monetary stimulus to play themselves.
Importantly average earnings had also only risen by 3.1% year on year which may well force Trump to play his cards slightly differently. The hope was for American incomes to have risen high enough to compensate for a potential pick up in prices of everyday goods a result of the tariffs imposed by China. As it stands we are only seeing a rise in costs, with the number of jobs created and indeed average wages beginning to stagnate. The timely agreement with Mexico over the weekend may prove helpful to the dollar as it potentially removes a layer of political uncertainty that wasn't necessarily helping business confidence.
It will be interesting to see how Wednesday's key inflation data comes out. Treasury secretary Mnuchin tried to calm the markets over the weekend suggesting that although the numbers are potentially pointing towards the need for an interest rate cut, the current numbers being posted are still a long way from adding up to a recession. Another poor reading on Wednesday could well bring further pressure to the dollar.
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