The US dollar is in its worst losing streak in 14 years and the data aren’t helping

Down in the dumps.
Down in the dumps.
Image: Reuters/Lucas Jackson
We may earn a commission from links on this page.

The bad news just keeps piling on for the dollar.

The US dollar index has fallen every month since February. This is its longest losing streak in 14 years. At some point, a correction is to be expected, especially given that the economy seems to be humming along nicely. This week, data showed US GDP grew at its fastest rate in more than two years in the second quarter of 2017. Today’s jobs report could have been the day it turned around. But it didn’t:

American employers added 156,000 jobs in August (pdf), missing economists’ forecasts for a 180,000 gain in payrolls. Meanwhile, the unemployment rate ticked up to 4.4%, from a 16-year low of 4.3%, and annual wage growth remained stubbornly sluggish at 2.5%. Traders reacted swiftly to the disappointment, and sent the dollar index down 0.5%, just minutes after the report was published.

For 2017, the average monthly payrolls increase is 176,000, about the same as 2016. While this is still a healthy pace of jobs gains, the stagnant labor force participation rate and wage growth will have policymakers at the Federal Reserve wondering if the US economy is prepared for more interest rate increases.

Most officials expected in June (pdf) that they would raise rates at least one more time by the end of the year, but weak inflation convinced many investors that they probably wouldn’t. This is keeping the dollar suppressed. Geopolitical concerns over tensions with North Korea and the looming need to increase the US debt ceiling aren’t helping the dollar either. But as the dollar languishes, other currencies are soaring. Most notably, the euro:

The dollar has lost 11% of its value against the European shared currency in the past six months. While, Europe is experiencing a growth spurt in its economy, the benefits have almost become too good. The euro climbed above $1.20 for the first time since January 2015 this week and is reportedly worrying European Central Bank policymakers who are trying to rollback stimulus measures. Now, they are now concerned the eurozone will face a fresh bout of low inflation because of the strength of the currency. ECB officials meet next week to announce their latest policy decision.

Next month’s jobs report is likely to be severely affected by Hurricane Harvey. Some 4.7 million people work in the areas hit by the storm, which make up about 3% of the US economy. The disruption could depress payrolls for several months before boosting them when reconstruction begins.