Weak US jobs growth ends dollar’s surge

THE weakest jobs growth in more than a year in the US has raised doubts about the Federal Reserve continuing its rapid pace of interest rate rises, ending the dollar’s surge against sterling.

Stock markets jumped on signs of cooling momentum in the strong US jobs market, after an unexpected rise in unemployment.

Official data showed that 315,000 jobs were added to the world’s largest economy in August, down sharply from 526,000 the previous month and the weakest reading since April 2021.

Unemployment climbed 0.2 percentage points to 3.7pc, driven by an uptick in people entering the labour market to find work.

The figures suggest that the battle to hire workers could begin to ease, alleviating some of the pressure on wages and inflation. The labour force participation rate – which shows how many workers are in or seeking work – jumped to a post-pandemic high of 62.4pc.

The data fuelled investors’ hopes that the Fed will be persuaded to rein in the blistering pace of its interest rate rises. It has hiked rates by 0.75 percentage points twice in a row and Fed chair Jerome Powell has taken a hawkish stance on delivering more increases to borrowing costs.

Markets trimmed their bets on a third huge increase at this month’s Federal Reserve monetary policy meeting after the jobs data, causing the S&P 500 to lift by more than 1pc in afternoon trade.

The figures also ended the rampant dollar’s rally on currency markets. Sterling rose 0.4pc against the dollar to near $1.16, ending a five-day losing streak that pushed it close to the lows hit in the pandemic.

Michael Pearce, senior US economist at Capital Economics, said: “The slower pace of payroll gains in August, together with the big rebound in the labour force, and the more modest increase in wages, would seem to favour a smaller 50 basis point rate hike from the Fed next month, rather than a 75 basis point rise.”