- The US gained 850,000 jobs in June, better than expected.
- Upbeat figures seem to be in Goldilocks territory, allowing the dollar to fall.
- The dollar has room to rise once the dust settles, as the Fed remains on course.
Is the lack of a presidential press conference a sign of strong jobs numbers? In the past two Nonfarm Payrolls reports, the White House pre-scheduled public appearance by President Joe Biden. Both figures missed. This time, the NFP beat estimates with 850K in June.
A third consecutive Nonfarm Payrolls disappointment was avoided – but the beat was not huge, revisions were minimal and a downside dollar correction was overdue. That explains the knee-jerk reaction of selling the dollar. It is also essential to remember that these greenback gains were fueled by the Federal Reserve, which based its policy on a better labor outlook, not an outcome.
Time to make big changes? Not so fast. Returning to normal is not like clicking the Undo button – finding workers with adequate skills and with matching salary expectations is far from easy. Nevertheless, the figures still point to rapid growth and that should encourage markets and the Fed.
Officials at the world's most powerful central bank will be responding to the NFP in the coming days and are unlikely to alter their views. The already growing chorus of officials calling for printing fewer dollars will likely continue voicing these views. Market participants are circling late August's Jackson Hole Symposium as the timing of a tapering announcement.
Moreover, wage growth remains upbeat at 3.6% YoY, and when people have more money in their pockets, it will likely exit these pockets and push prices higher. The Fed's second mandate is price stability and any such increase in salaries may convince the bank to abandon its theory that inflation is transitory. Higher pay means persistent price rises.
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