- US job growth slowed to 187,000 in June, on top of a downward revision.
- Wage growth remained elevated at 4.4%, better than expected.
- Ongoing inflationary pressure may prevent the US Dollar from falling.
For the labor market, the narrative is straightforward – normality at last. For markets, it is somewhat more complicated. Nonfarm Payrolls failed to provide a straightforward narrative for investors, and not for the first time. The US Dollar is set to fight back after the initial blow.
Starting with the economic picture, American hiring has normalized. An increase of 187,000 jobs after a downward revised 185,000 last month is just around pre-pandemic levels. After nearly three and half years, job growth is normal. That is what the Federal Reserve wanted to see – cooling rather than a crash.
The US Dollar fell in response to the data, which came out below expectations, and on top of downward revisions. If the Fed gets what it wants, it does not need to act – no more hikes.
On the other hand, wage growth is higher than it was before March 2020 – at 4.4% YoY, salaries continue driving underlying price pressures higher. That means a rate hike in September cannot be fully ruled out. There is another Nonfarm Payrolls report and two Consumer Price Index (CPI) figures until the next decision.
The opposite report was needed for decisive US Dollar falls – robust job growth with falling wages. As it has not happened, there is room for the US Dollar to fight back in the short term. Next week's CPI figures will probably be more decisive. I expect them to show ongoing disinflationary pressures, hurting the Greenback.
Markets do not take summer holidays, but lower liquidity may lift volatility even without a significant data point like the NFP coming out.
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