US non-farm payroll figures dropped significantly in August, indicating a slowdown in the economy. Contrary to expectations of 78,000 new jobs, only 22,000 were added. The previous month’s data showed a mixed trend, with July’s figures being revised upward to 79,000, while June’s numbers were decreased to 13,000. The unemployment rate rose to 4.3 percent from 4.2 percent.
This situation is concerning, especially as inflation is decreasing at a slow rate, but deteriorating labour market conditions are harmful to the economy.
Such disappointing job growth nearly assures a 0.25 percent interest rate cut during the Federal Open Market Committee (FOMC) meeting on September 16-17, though some economists anticipate even a larger 0.50 percent drop in US interest rates.
However, given the worsening job market, the Fed’s focus will likely be on stabilizing employment conditions. The Bureau of Labor Statistics JOLTS report has indicated that, since April 2021, the ratio of job vacancies to unemployed individuals fell below 1, reaching 0.99 in July.
Earlier this month at the Jackson Hole symposium, Fed Chairman Jerome Powell suggested that the balance of risks may be changing, potentially leading to a shift in monetary policy.
For market participants, the unclear views and sentiments of policymakers will make it more intriguing to determine whether any rate changes will be dovish or hawkish.
Meanwhile, the impact of tariffs on goods prices has been minimal thus far, so this week’s producer price index (PPI) and consumer price index (CPI) will serve as crucial indicators for policymakers moving forward.
In the Eurozone, policymakers from the European Central Bank (ECB) are convening for two days to discuss the policy rate. With the US-EU trade agreement nearly finalized, the chances of an escalation in the trade war have diminished. Given that inflation is hovering around the target of 2%, the ECB can afford to postpone a decision on cutting rates and maintain its deposit rate at 2%.
However, there is a divide among ECB members regarding whether to implement a rate cut, with some members even cautioning about a possible rate hike in the future if inflation remains high.
Market participants will closely analyze ECB President Christine Lagarde’s press conference, where her composed manner may lead her to adopt a neutral tone. Analysts suggest that any indication of holding the policy rate steady for the remainder of the year could be perceived as a slightly hawkish signal, implying that any rate cuts may not happen until next year.
In the UK, the budget release has been postponed to November 26 due to severe debt challenges, necessitating more time to arrange for revenue. They are expected to require around £ 50 billion to bridge the fiscal gap.
The usual yet unfavourable strategy of increasing taxes and cutting spending could hinder economic growth. Consequently, UK government bonds have surged, with 30-year gilts hitting their highest level since 1998. The Pound Sterling has also faced pressure since August, indicating that if the bond market’s strain eases, Pound may stabilise somewhat.
Gold was the most actively traded commodity on Friday, fluctuating within a $ 60 range between $ 3540 and $ 3600. Several factors are bolstering gold’s appeal, including Donald Trump’s trade and tariff strategies, the Federal Reserve’s stance on interest rates, global central bank’s interest in purchasing gold for building their reserves portfolio, asset reallocations by fund managers, and ongoing geopolitical tensions.
In the US housing market, estimates indicate a surplus of sellers compared to buyers. Currently, it appears that asset managers and traders consider purchasing gold during dips to be the most promising investment strategy. This writer can confidently say this trend is likely to persist at least until the next FOMC meeting.
This week, the economic data release will be relatively brief, with the US Producer Price Index (PPI) set to be published on Wednesday, the Consumer Price Index (CPI) on Thursday, and on Friday, the preliminary results of the University of Michigan Consumer Sentiment survey will be released.
WEEKLY OUTLOOK — Sept 8-12
GOLD @ USD 3586.50— Gold appears poised to rise towards new highs, but it must close above USD 3612 to test the USD 3650 levels. In the meantime, any corrections could present a buying opportunity. Support is situated around USD 3522-28, which needs to remain intact; otherwise, we may see a drop to USD 3495.
EURO @ 1.1718— The critical level to watch is 1.1790. A breakout above this level would open the door to 1.1850. Conversely, if it drops below 1.1640, it could decline to 1.1590.
GBP @ 1.3510— Pound Sterling needs to surpass 1.3620 to regain its upward momentum. However, there remains the possibility of fall towards 1.3415. Only break could drive it down to 1.3350.
JPY @ 147.41— USD must protect the 146.50 level to continue its upward movement towards 148.40 or 149.10. A breakdown of this support level could lead to a decline towards 145.90.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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