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Daily Wrap 3 September 2021

3 Sep 2021 04:22 PM

US dollar drops as jobs report disappoints, equities edge lower

The US dollar has dropped to a new four week low as the US non-farm payrolls report greatly missed exceptions. Last month, 235,000 jobs were added, while economists were expecting 750,000, so it was a major shock – it was the lowest reading in seven months. Immediately after the number was published, the greenback took a knock as dealers took that as an indication the Federal Reserve will not be looking to taper their bond buying scheme anytime soon. The finer details of the update showed the previous report was revised up to 1.05 million from 943,000, and that the unemployment rate fell to 5.2%, the lowest since the pandemic began. Today’s numbers are very unlikely to ramp up chatter about tapering, but it is clear the US labour market is still improving, albeit at a slower pace than expected.

As is often the case with the US jobs report, traders reacted to the headline number but there can be contradicting news in other aspects of the announcement. Overall, it was underwhelming update, but it was nowhere near as bad as initially thought. The greenback is still in the red, but it has rebounded a touch, hence why EUR/USD, AUD/USD and GBP/USD are off their highs of the day.

Not surprisingly, there was a lot of volatility in US index futures as the data was released, the S&P 500 is showing a small decline despite the fact some traders feel the prospect of the Fed tapering has been pushed back until spring next year. It is a little worrying the non-farm payrolls reading saw such a deceleration in growth, especially in light of the downbeat ADP employment reading during the week. In the past few days, it was confirmed by the Caixin surveys that China’s services and manufacturing sectors experienced negative growth, if China is cooling, that is likely to weigh on the US’s rebound too.

Gold set a new one month high as the decline in the US dollar, and to a lesser extent, the dip in stocks, has helped the yellow metal. The inverse relationship between the greenback and the commodity continues to play out. If gold’s rally continues, it might look to retest the $1,831-$1,834 zone, and a break above that area could pave the way for $1,863 to be retested.

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