The US dollar rebounded slightly but could remain under pressure as traders continue to expect interest rate cuts this year.
The labour market data amplified the dovish tilt, adding to the concerns following a string of weak reports this month.
Weekly jobless claims surged to 263,000, the highest since October 2021, and were well above consensus expectations of 235,000.
However, data showed stable inflation. Core inflation held steady at 0.3% month-on-month, in line with expectations, suggesting underlying price pressures are not accelerating. Headline CPI rose 0.4% in August, above the 0.3% forecast. The combination of firmer headline inflation and stable core figures reduced the probability of a larger 50 basis point cut at next week’s Fed meeting. Still, markets remain convinced that the easing cycle will continue, with a quarter-point cut seen as almost certain.
Treasury yields rebounded slightly after a volatile session yesterday but remained close to their recent lows. Investors await the September 17 Fed decision and updated economic projections. A more dovish set of forecasts could drag both yields and the dollar lower, while a cautious tone may offer some support.
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