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Dollar weakens after soft July jobs report shifts Fed expectations
ING says markets have pulled back odds for a September rate hike, with 2-year Treasury yields down 8bp and fed funds futures pricing only 10bp of a possible hike for 16 September.
INGs Chief International Economist James Knightley said the weak July US jobs report has pushed market pricing away from a September Federal Reserve rate hike, contributing to a softer US dollar and lower 2-year yields.
According to the note, July payrolls fell by 23,000 and downward revisions of 103,000 affected prior months, leaving the three-month average at 20,000. The unemployment rate fell to 4.1% from 4.2%, but ING attributed that to a further drop in labor force participation rather than stronger hiring, while average hourly earnings growth slowed to 3.2% year-on-year from 3.5%.
FXStreet reported ING described the market reaction as significant, with 2-year yields down 8bp and the dollar softening. ING said Fed funds futures are pricing just 10bp of a potential 25bp hike on 16 September, supporting its view of an extended Fed pause.
Looking ahead, ING pointed to a calendar of catalysts before the September decision, including another jobs report, two CPI releases, and the Jackson Hole Symposium, while also expecting headline CPI of 0.1% month-on-month and core CPI of 0.2% month-on-month for next weeks July CPI release.