The US dollar (USD) experienced a dip on Friday, retracting most of the week’s gains. The release of July’s jobs data highlighted slower-than-expected growth but signalling a persistently tight labour market due to strong wage increases and a decrease in unemployment to 3.5%.
These mixed indicators have triggered anticipation of a soft economic landing. However, the robust wage growth suggests that the Federal Reserve may need to sustain higher interest rates for longer.
The Jobs Report: Insights and Implications
According to the Labour Department’s household survey, nonfarm payrolls rose by 187,000 jobs last month. This growth was lower than the forecasted 200,000 jobs predicted by economists surveyed by Reuters.
The downward revision of job growth for May and June implies a slackening demand for labour, possibly due to the Fed’s considerable rate hikes. However, with 1.6 job openings for every unemployed person, the slowdown in hiring could indicate companies are struggling to source workers.
The weaker-than-projected jobs figures disrupted the week’s surge in Treasury yields and curtailed the dollar’s recent ascent, says Marc Chandler, chief market strategist at Bannockburn Global Forex. According to Chandler, the dollar’s upward correction seems nearly complete.
Upcoming Consumer Price Index (CPI) data could reveal the first annual inflation increase since June 2022, providing further insights into the economy’s trajectory.
Kathy Lien, the managing editor of 60 Second Investor, believes that the case for a soft landing still holds despite anticipating a strong number after the private payrolls report. However, based on current data, she doesn’t rule out the possibility of another rate hike by the Federal Reserve.
The dollar index, which measures the USD against six other currencies, fell 0.4% after reaching its highest level since July 7, marking its most significant single-day loss in three weeks.
Marvin Loh, the senior global macro strategist at State Street, observes that the labour market is progressing in the right direction, providing optimism for bullish and bearish investors.
The deceleration in job growth aligns with Fed Chair Jerome Powell’s preferred range of 100,000 to 120,000 new jobs monthly. However, the 4.4% rise in average hourly earnings year-over-year contradicts the Fed’s 2% target, creating inconsistency.
The euro advanced 0.55% to $1.1004 in the currency markets, and the Japanese yen appreciated 0.51% at 141.81 per dollar. Traders continue to assess the impact of the Bank of Japan’s recent monetary policy tweak on higher U.S. yields and local rates.
* Additional news input is taken from Reuters