US Labor Market Data Stokes Concern Over Interest Rate Hikes
The US labor market data released last Friday showed an unexpected decline in job creation, which has left investors wondering about the future trajectory of interest rates. The nonfarm payrolls (NFP) fell by -23k in July, well short of the expected +80k increase.
This development has implications for the Federal Reserve's upcoming decision on interest rates. Currently, there is a 44% chance of a 25bps hike in September, down from a high of 75% at the end of July.
The US Consumer Price Index (CPI) data for July will be released this week, which could have a significant impact on Fed funds rate expectations. A soft CPI print would strengthen the case for a dovish repricing in Fed hike expectations and further undermine the US dollar.
The Reserve Bank of Australia and Norges Bank are also set to hold their interest rates at 4.35% and 4.25%, respectively, which will maintain the favorable interest rate carry in these countries and keep the AUD and NOK currencies strong.