The US Non-Farm Payroll (NFP) faced a significant decline in July, reporting 73,000 jobs added, well below the anticipated 102,000. Furthermore, the June figures were downgraded from 147,000 to a mere 14,000. The unemployment rate climbed to 4.2 percent, up from 4.1 percent.
This unemployment report clearly indicates that the effects of tariffs are beginning to emerge, negatively impacting the labor market. This situation strengthens the argument for a potential interest rate cut in September, suggesting a slowdown in hiring momentum.
In the aftermath of this economic data release, two Federal Open Market Committee (FOMC) members who previously voted for a rate cut, Christopher Waller and Michelle Bowman, issued a statement advocating for proactive measures in light of the slowing growth and weakening labor market.
They expressed their belief that the current tariff effects are only temporary and suggested that if inflation or employment rebounds more quickly than expected, the Federal Reserve could respond accordingly.
On Friday, the US ISM Manufacturing PMI also fell short of expectations, dropping to 48 in July from a target of 49, marking the fifth consecutive month of decline and signaling a decrease in factory production.
The unexpectedly weak jobs report, particularly for June took many in the market by surprise and led to a sharp decline in the value of the US dollar.
The economic reports did little to uplift global equity markets, reflecting the growing unease following recent tariff actions, especially after the implementation of a reciprocal executive order effective August 1. Countries like Canada, Switzerland, and Brazil were particularly affected by the increased rates.
The impact of these reciprocal tariffs will extend beyond American trading partners, as they are projected to raise the cost of everyday goods, ultimately affecting the US consumer.
In the meantime, the Bank of Japan (BOJ) has kept its policy rate steady at 0.50 percent. The BOJ is cautiously optimistic due to increasing external risks and has raised its inflation target for 2025 significantly, from 2.2 percent to 2.7 percent. This adjustment is primarily attributed to a sharp anticipated increase in food prices.
Following the announcement of a trade breakthrough between the US and Japan, market sentiment shifted to a more hawkish stance. This change was driven by a reciprocal trade tariff deal that reduced rates from 25 percent to 15 percent.
Although the specifics of the Japanese investment package remain unclear, its estimated value is around USD 550 billion.
However, the outlook has turned dovish, as market participants believe that the effects on inflation may take time to materialize.
This has led to significant fluctuations in the USD/JPY exchange rate, with the USD later softening against the JPY after disappointing US non-farm payroll data was released.
On Thursday, the Bank of England (BoE) will reveal its policy rate. Past announcements have indicated a divide among policymakers regarding interest rates, making this decision particularly intriguing. The situation is complicated by a persistently weak job market coupled with ongoing inflationary pressures.
The likelihood of a 25 basis point rate cut to 4 percent appears favourable, though an unexpected increase in headline consumer price inflation to 3.6 percent in June poses a potential obstacle, indicating robust price growth.
Meanwhile, gold, which experienced selling pressure after the Federal Reserve decided to keep interest rates unchanged, was further impacted by the Fed Chair’s comments during the press conference, stating that no decisions had been made regarding September. However, gold saw a spike in value at the end of the week following the release of weaker than expected job data. The evident economic uncertainty in the US is prompting investors to turn to gold as a safe haven. The combination of trade tensions and poor US economic indicators is particularly encouraging for gold investors.
Looking ahead, this week’s US economic data is rather light. The ISM Services PMI will be released on Tuesday, followed by the announcement of weekly jobless claims on Thursday.
WEEKLY OUTLOOK — Aug 4-8
GOLD @ USD 3362— Gold may begin the new week by attempting to reach new highs before pulling back. A break above USD 3386 would pave the way for a move toward USD 3415. This is not a favoured move. I wouldn’t be surprised to see a correction. On the downside, there is support at USD 3325. A break below this level could lead to a drop to the USD 3302-05 range. Adopting a “buy the dips” strategy seems to be favorable for the week.
EURO @ 1.1586— I anticipate that the Euro will remain above the support level of 1.1465. If it breaks past 1.1680, this could lead to a test of 1.1740. If not, keep an eye on 1.1420.
GBP @ 1.3280— Pound Sterling may rise, but it must break above 1.3360 to reach 1.3440. Keep an eye on 1.3170. A breakdown there could lead to 1.3090.
JPY @ 147.38— If the $/JPY pair cannot surpass 148.60, there is a possibility of testing the 146.60-70 levels. A breakdown could lead to further losses for the Dollar. Or else 149.20.
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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