- The US Dollar rolls through markets and rallies across the board.Â
- Markets are closing any hopes for June or July Fed cut, even September doubtful.Â
- The US Dollar Index jumps away from the lower 104.00 and rallies higher.Â
The US Dollar (USD) rallies on the back of upside surprise in the Nonfarm Payrolls number, which came in at 272,000, topping the highest economist estimate at 258,000. Past few days hopes for a rate cut from the US Federal Reserve were starting to increase for September, though expect that possiblity to be out of the cards now. Question now will be if there will be a cut at all in 2024, as these numbers do not allow or demand from the Fed to cut.Â
On the economic front, all data is out now and markets can start to digest the numbers. Federal Reserve Governor Lisa Cook is still making an appearance, delivering a speech at the Girls Global Academy 2024 Commencement Ceremony at the University of the District of Columbia in Washington, D.C. Though there is no expectation that her speech will have any policy guidance information.Â
Daily digest market movers: Caught on the wrong side
- At 12:30 GMT, the US Employment Report for May was released:
- Nonfarm Payrolls rallied from 185,000 in April to 272,000 in May. The fact that the previous 185,000 got revised down to 165,000 makes this number even bigger.Â
- Monthly Average Hourly Earnings ticked up to 0.4%Â May from 02.% a month before.
- Yearly Average Hourly Earnings jumped from 3.9% to 4.1%.
- Unemployment Rate went up a touch, from 3.9% to 4%.
- European equities are getting slaughtered over the US Jobs Report release, while US equities are still looking for direction.Â
- According to the CME Fedwatch Tool, 30-day Fed Fund futures pricing data suggests a 31.8% chance of keeping rates unchanged in September, against a 55.7% chance of a 25 basis points (bps) rate cut and a 12.3% chance of an even 50 bps rate cut. For the upcoming meeting on June 12, markets are fully pricing that rates will remain at current levels.Â
- The benchmark 10-year US Treasury Note trades around 4.41%, and jumps up substantially, erasing hopes for a quick rate cut from the Fed.
US Dollar Index Technical Analysis: CPI next week already priced in
The US Dollar Index (DXY) is flirting with a drop below the 104.00 handle. Some brief excursions below this level have already been made in the past few days, though for now, this area still sees ample amounts of buying interest. The question is how long those buyers will last, and should NFP come in under the weakest projection, something could snap.Â
On the upside, the DXY first faces a confluence resistance in the 200-day Simple Moving Average (SMA) and the 100-day SMA at 104.44. Further up, the pivotal level near 104.60 comes into play. For now, the topside can be seen around 105.00, with the 55-day SMA coinciding with this round number and the peak from recent weeks at 105.08.
On the downside, the 104.00 big figure looks to be holding. Once through there, another decline to 103.50 and even 103.00Â are the levels to watch. With the Relative Strength Index (RSI) still not oversold, more downsides are still under consideration.Â
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.
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