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US Dollar Retreats From 20-Year Highs after Unexpected Rise in Unemployment 

US Dollar Retreats From 20-Year Highs after Unexpected Rise in Unemployment 

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The US Dollar index DXY traded lower on Friday below its 20-year highs around 110 hit yesterday following the unexpected rise in unemployment rates during August, the U.S. Bureau of Labor Statistics reported today. 

The US economy added 315 thousand jobs in August, beating market expectations of 295K jobs. However, the unemployment rate rose 0.2% to 3.7% in August, the highest since February 2022, from 3.5% in the previous month and well above expectations at 3.5%.

US Dollar Retreats From 20-Year Highs after Unexpected Rise in Unemployment 
US Unemployment

The number of unemployed persons increased by 344,000 to 6.0 million in August. Meanwhile, the labor force participation rate increased by 0.3% over the month to a five-month high at 62.4% and wages grew less than expected. 

The surprise increase in the unemployment rate could ease the pressure on the Fed to continue its aggressive rate hikes. Added to the expectations that the job growth is set to ease further in the next months, despite the strong readings in August.

Hawkish comments from the Fed Chair Jerome Powell at Jackson Hall summit have pushed the US Dollar into new peaks in two decades. Powell stated that the Federal Reserve has no intention to stop raising interest rates until the economy is back under control. 

Powell noted that Fed officials are more focused on taming the accelerating inflation even though the tightening moves will cause the economy to slow down and affect households and businesses, as well as weakening the job market.

Powell’s speech has revealed that the Fed will choose cooling down inflationary pressures over economic growth and won’t allow the “far greater pain” that would result from letting inflation continue at high levels. 

Recently, FOMC member Lorreta Mester said that the Fed will have to continue raising rates above 4% by early next year in order to get inflation back to target. 

According to the FedWatch tool, market expectations for another 75 bps in September has decreased to 62.0% on Friday, from 75% on Thursday. 

The US Dollar index is trading -0.35% lower on the day near 109.30 as recent data spurs fears that the economy is starting to suffer from the high rates and inflationary pressures.

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