US Dollar: Labor slowdown gives mixed signals for Dollar - Commerzbank

Commerzbank’s Volkmar Baur and Tatha Ghose highlight that despite a “low-hire, low-fire” US labor market, the Dollar remains supported. Initial jobless claims and unemployment stay very low, while wage growth shows only tentative signs of slowing. The authors stress that any sustained moderation in wages and inflation will take time, delaying relief for the Federal Reserve and keeping the Dollar underpinned.

Labor market dynamics and USD

"At the same time, a look at the market movement in EUR/USD shows that last Friday’s jobs report had a stronger impact on the exchange rate than Wednesday’s inflation data. Admittedly, the surprise in the jobs report was also significantly greater than that in the inflation data, which, all in all, came in line with expectations. Nevertheless, it shows that, amid all the focus on inflation figures, we shouldn’t completely lose sight of the labor market."

"Yesterday’s figures on US initial jobless claims were once again at a very low level. With 209,000 initial claims, the 4-week moving average held below 200,000 - only for the fourth time in the last five years."

"While there have been minimal improvements in quits, layoffs, and hiring rates in recent months, all three rates remain at a low level compared to the unemployment rate. This means that, compared to the last 25 years, one would actually expect a more dynamic labor market with such a low unemployment rate - with more people quitting their jobs to find something better and more companies hiring new employees."

"One would think that such a lack of dynamism would be reflected in lower wage growth. However, this is not (yet) the case at the moment. This is because, when we look at the trend in average hourly earnings, we see that - compared to unemployment - they still present a very robust picture, with a most recent increase of 3.2%."

"All in all, it must be said that while there are initial signs that the sluggish momentum in the labor market is affecting wage growth, it will take a few more months to see whether this trend takes hold. Lower wages would certainly also have an impact on inflation and ease pressure on the Fed to raise interest rates. However, as mentioned, it will likely take some time for this to materialize. And until then, the US dollar is likely to remain supported."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)