Nonfarm Payrolls Analysis: Weak job market? Wages advance, Fed hawks and US Dollar set to push back

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.

Yohay Elam FXStreet

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.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD remains offered; supported by 0.7100

AUD/USD adds to Monday’s retracement, although it manages well to keep the trade above the 0.7100 yardstick ahead of the opening bell in Asia. Once again, the softer tone in spot follows decent gains in the Greenback amid rising bets for a Fed rate hike on Wednesday.

USD/JPY extends gains toward 155.00 amid USD resurgence

USD/JPY keeps pushing higher toward 155.00 early Tuesday, looking for more upside, as traders await the FOMC and BoJ meetings this week. Meanwhile, Fed rate-hike bets and oil-driven inflation risks keep US bond yields near multi-year highs, supporting the US Dollar and the pair. That said, a more hawkish repricing of the BoJ normalization path might continue to underpin the Japanese Yen and could limit USD/JPY's upside. .

Gold set to fall toward $4,000 as Warsh faces a Fed rate-hike dilemma

As the Federal Reserve monetary policy announcement approaches and the Middle East war intensifies, the US Dollar resumes its advance. Gold price posted a tepid attempt to recover its shine in early August, but with renewed USD demand, the bright metal faltered miserably and is now closer to the $4,000 mark than the encouraging $4,700 peak from a month ago.

Bitcoin pulls back as valuation ceilings hold while XAU weakness persists

Bitcoin (BTC) corrects alongside the broader cryptocurrency market on Tuesday as selling persists ahead of the United States (US) Federal Reserve (Fed) monetary policy decision. Market participants expect the central bank to raise interest rates to 3.75%-4.00% on Wednesday, potentially weighing on risk assets.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.

Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight

The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.