The dollar index (DXY00) on Wednesday fell by -0.24%. Wednesday’s rebound in equity markets has curbed liquidity demand for the dollar. Losses in the dollar accelerated on Wednesday as the chances for a Fed rate cut later this month increased after the Jul JOLTS job openings fell more than expected to a 10-month low.
US Jul JOLTS job openings fell -176,000 to a 10-month low of 7.181 million, showing a weaker labor market than expectations of 7.380 million.
US Jul factory orders fell -1.3% m/m, right on expectations, and the second straight month orders have declined.
The Fed Beige Book hinted at signs of stagflation and was bearish for the dollar as it stated that “most of the twelve Federal Reserve districts reported little or no change in economic activity since the prior Beige Book period. Also, across districts, contacts reported flat to declining consumer spending because, for many households, wages were failing to keep up with rising prices. In addition, nearly all districts noted tariff-related price increases, with contacts from many districts reporting that tariffs were especially impactful on the prices of inputs.”
Fed Governor Christopher Waller said the fed funds rate is currently above the neutral rate, meaning monetary policy is restricting the economy, and that inflation is likely to move “much closer” to the Fed’s goal in six or seven months. He added that the Fed should aim to get ahead of a sharp slowdown in the job market and “we need to start cutting interest rates at the next meeting” and make multiple cuts in the coming months.
St. Louis Fed President Alberto Musalem said, “The current modestly restrictive setting of the policy rate is consistent with today’s full employment labor market and core inflation nearly one percentage point above the Fed’s 2% target,” and it’s important to take a “balanced approach” to policy right now and not weight too much to support the labor market or to fight inflation.
Atlanta Fed President Raphael Bostic reiterated that he sees one interest rate cut this year, as price stability remains his primary concern, and it’s not unambiguously clear that the labor market is weakening materially.
