US Dollar traded higher on Tuesday as markets gear up for additional labor market data from the US


  • USD manages to hold its ground on Tuesday after sharp losses on Monday due to disappointing May ISM PMIs.
  • JOLTS for April reported a lower-than-expected job opening.
  • Markets await upcoming Nonfarm Payrolls report and wage growth data for further insights into the Fed's policy outlook.

On Tuesday, the US Dollar Index (DXY) saw moderate gains despite soft labor market data reported by the US Bureau of Labor Statistics. The previously bearish market environment, fueled by weak Institute for Supply Management (ISM) PMI data for May, appeared to stabilize. That being said, the market seems to be building concerns around a weakening US economy that might prompt the Federal Reserve (Fed) to cut rates sooner.

Market attention has now shifted to additional labor market data that will include ADP Employment Change figures, Nonfarm Payrolls, Wage inflation, and Unemployment data for May, which will give additional insights into the US economy.

Daily digest market movers: USD holds ground despite soft JOLTS data

  • Markets displayed unease with the JOLTS report indicating fewer job openings in April.
  • Job openings in April were reported to be 8.059 million, lower than both the expected 8.34 million and March's revised figure of 8.35 million, according to data released on Tuesday by the BLS.
  • Falling job openings contributed to the market's wariness, escalating speculation of a Fed interest rate cut in September to nearly 60%.
  • Upcoming Nonfarm Payrolls report for May and wage growth data will be crucial in further influencing the Fed's future policy direction.

DXY technical analysis: US Dollar sees short relief despite negative indicators

Despite the slight gains on Tuesday, the DXY outlook continues to be negative. Indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in negative territory, reflecting persistent bearish sentiment and selling pressure.

After falling below the 20,100 and 200-day Simple Moving Averages (SMAs), the overall trend has turned in favor of the sellers.

 

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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