Comments from the Federal Reserve Helped to Boost Dollar

On August 5, the dollar held gains against a basket of currencies after hawkish comments from the central bank-led markets to move forward the likely timing of a policy tightening. One day earlier, Richard Clarida mentioned that conditions for an interest rate hike could be met in late 2022. Fed Vice Chair Clarida, and several of his colleagues, also indicated a move to taper bond buying later this year or early next year, depending on the labour market over the next few months.

As can be seen from the information mentioned above, policymakers are closely monitoring the country’s labour market. Predicting the jobs market with any confidence is not an easy task, as the spread of the Delta variant and labour bottlenecks roil the market. Consequently, the median forecast for payrolls is 870,000 while the range of estimates stretches from 350,000 to 1.6 million.

Last month, employers added 330,000 positions, a significant deceleration from the downwardly revised 680,000 in June. July’s job growth was also the smallest gain in several months. Interestingly, the biggest gains for July came in leisure as well as hospitality, which added 139,000 payrolls. Education and health services added 64,000 jobs in July.  Professional and business services added 36,000.

Goods-producing industries added 12,000 jobs and natural resources and mining gained 3,000. Unfortunately, construction added just 1,000 new positions.

The data released by ADP came just two days before the more closely watched Labor Department nonfarm payrolls release. Unlike the information released by ADP, the Labor Department’s count includes government jobs.

Pound, yen, and dollar

The British pound ticked slightly higher following the Bank of England’s decision. The central bank made the decision not to change the size of its bond-buying program. It also kept its benchmark interest rate at a historic low of 0.1%.

The Bank of England said notably that it would start reducing its stock of bonds when its policy rate reaches 0.5% by not investing proceeds. The central bank would consider actively selling down holdings when the rate reaches at least 1%.

The euro rose 0.1% to $1.1854, having recoiled from a top of $1.1899 overnight. The U.S. dollar rose to 109.75 yen, although the yen began to recover some ground.