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What’s happening: The US dollar fell sharply on Friday following the release of the nonfarm payrolls (NFP) report for July.
What happened: The greenback fell to a four-month low after a downbeat jobs report fuelled speculations of the US Federal Reserve lowering rates by 50 basis points (bps) at its September meeting.
Weak results from big tech companies and disappointing manufacturing data also weighed on the US dollar.
Why it matters: Data released on Friday showed that the US economy added 114,000 jobs in July, much lower than June’s 179,000 job adds. The figure was also lower than market estimates of 175,000 and well below the average monthly job additions of 215,000 over the previous 12 months, signalling a cooling off in the labour market.
The US unemployment rate rose to 4.3% in July, from 4.1% in the prior month, the highest level since October 2021. The figure was also higher than market estimates of 4.1%. Average hourly earnings rose by 0.2% to $35.07 in July, lower than the 0.3% gain recorded in the previous month and below market expectations of a 0.3% rise.
The US Federal Reserve had kept its benchmark interest rates unchanged at its meeting on Wednesday last week. However, Fed Chairman Jerome Powell had said that rates could be cut as soon as September in case the economy follows its projected path.
The latest NFP report fuelled speculations of the US Federal Reserve cutting interest rates to trigger economic growth. Markets have fully priced in a rate cut of at least 25 bps in September, with some expecting a cut of 50 bps. Investors now widely expect the US central bank to cut rates by more than 100 bps by the end of this year.
Disappointing earnings projections from some companies also stoked concerns around the economy. Shares of Amazon dipped around 9% on Friday, after the company reported downbeat quarterly revenues and issued a weak outlook. Intel’s shares tumbled around 27% after the company posting weak quarterly results.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell 1.15% at 103.22. The index declined to as low as 103.16 during the session, to record its weakest level since March 14. The US dollar logged the steepest single-session percentage decline since November last year.
The EUR/USD forex pair gained 1.11% to 1.0913, hitting 1.09175 earlier in the session to notch its strongest level since July 18.
The USD/JPY pair dipped 1.88% to 146.55 to record the lowest level since March 12. Last week, the Bank of Japan had raised rates to 0.25%.
The GBP/USD forex pair gained 0.5% to 1.2804, recovering some of the losses recorded on Thursday when the Bank of England slashed rates from a 16-year high level.
What to watch: Investors await the release of the US services index. The ISM services PMI had declined to 48.8 in June and is expected to rise to 51 for July.
Context: Equity markets in Europe settled sharply lower on Friday amid global growth concerns following the release of the US NFP report.
Details: Global markets remained under pressure last week with several major central banks making policy moves. The Bank of England lowered its benchmark interest rates from a 16-year high on Thursday, while the Bank of Japan raised rates by 25 basis points.
The US reporting job adds much lower than market expectations and higher-than-expected unemployment data sparked concerns around the global economy.
On the corporate front, shares of ASML, the largest company by market cap in the Eurozone, dipped more than 11% on Friday amid a plunge in the global chip sector. Shares of industrial stocks, including Siemens and Schneider Electric, also recorded sharp losses on Friday.
The STOXX Europe 600 Index fell 2.73% to close at 497.85 on Friday, recording its worst session since December 2022. The index dipped below the 500 level for the first time since April.
Almost all sectors closed in the negative zone, with tech stocks plunging around 6% during the session after shares of US giant Intel tumbled 26% on Friday following weak quarterly earnings.
London’s FTSE 100 fell 1.31% to close at 8,174.71 on Friday, while Germany’s DAX 40 and France’s CAC 40 lost 2.33% and 1.61%, respectively.
What to watch: Investors await the release of economic reports on Eurozone’s producer price inflation, services PMI and composite PMI today. The HCOB Eurozone services PMI is expected to decline to 51.9 in July, from 52.8 in the prior month, while composite PMI is projected to fall to 50.1 in July, from 50.9 in the prior month.
Analysts expect producer prices in the Eurozone to accelerate 0.3% in June, following a 0.2% decline in May.
Other Markets: US trading indices closed lower on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 1.51%, 1.84% and 2.38%, respectively.
S&P slashed Ukraine’s credit rating to “selective default” due to its ongoing war with Russia. The news sent the RUB/USD pair higher in forex trading this morning.
China’s Caixin General Services PMI climbed to 52.1 in July, from 51.2 in June. The latest reading also topped market expectations of 51.4, lending support to the CNY/USD forex pair.
Australia’s Melbourne Institute’s Monthly Inflation Gauge rose by 0.4% in July, following a 0.3% rise in the prior two months, which sent the AUD/USD pair lower in forex trading this morning.
Singapore’s S&P Global PMI improved to 57.2 in July, from 55.2 in the prior month. The latest reading signalling the fastest expansion since October 2022 lent support to the SGD/USD forex pair.
Japan’s au Jibun Bank composite PMI rose to 52.5 in July, from June’s reading of 49.7, sending the JPY/USD pair higher in forex trading this morning.
Turkey’s inflation rate and producer price inflation, South Africa’s S&P Global PMI, Spain’s services PMI and composite PMI, Italy’s services PMI and composite PMI, France’s services PMI and composite PMI, Germany’s services PMI and composite PMI, UK’s New passenger car registrations, services PMI and composite PMI, Canada’s average hourly wages of permanent employees, Brazil’s services PMI, composite PMI and Central Bank of Brazil’s focus market readout, US services PMI and composite PMI, as well as Russia’s total vehicle sales.
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