Is Another Rate Hike This Year Still Warranted?

If Federal Reserve policy makers were already starting to question the need for another Rate Hike this year – and the pace thereafter – then this week’s data won’t have made them feel any more comfortable.

Thursday’s weak inflation data – continuing this year’s trend of cooling price pressures – was today made all the worse by a poor August Jobs Report across the board with unemployment rising, job creation falling well short of expectations and earnings showing no improvement. Anyone hoping for a signal this month that the Fed is on track for another Rate hike this year may well be disappointed.

U.S Non-farm Payrolls Disappoint – Risk off, Dollar Down

The downward revision to July’s NFP number was the icing on the cake. It’s worth noting that while the numbers are disappointing, the labor market is still performing very well, but when inflation data is lacking, the Fed is relying on the employment data to justify more rate hikes.

While the dollar came under significant pressure after the release – as traders moved to increasingly price out a December hike – the move was quickly reversed against the euro. Just as Mario Draghi and his colleagues at the ECB were watching in disbelief as EURUSD headed back towards 1.20 and looked like easing past it, “ECB sources” came to the rescue and the move was quickly reversed.

In what appears to be far more than a coincidence, ECB source reportedly claimed that the QE plan won’t be fully ready until December. This may be the sceptic in me but it would seem the central bank is paying far too much attention to its fx rate and may now even be planning its tapering announcement around it, or at least using it as a tool to hold back the currency.

DAX Gains Ground as Eurozone, German Mfg. PMIs Show Strong Expansion

The pound managed to hold onto its gains against the dollar which supports the view that the reversal was driven by the ECB source comments, as opposed to the usual volatility that can follow such releases.

Either way, the jobs report will be seen as a blow to Fed chances of another rate hike this year, as well as to Donald Trump who I’m sure would have loved nothing more than a reason to post something positive on Twitter. I feel this month’s report may not make the Twitter cut.

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