US Dollar struggles following Jerome Powell’s disinflation, positive JOLTs
- US Dollar sees minor losses amid Jerome Powell’s disinflation forecasts.
- JOLTs figure from June came in higher than expected.
- Expectations of interest rate cut in September remain steady ahead of key NFPs on Friday.
On Tuesday, the US Dollar, as per the DXY Index, showed a decrease in gains to hover near 105.70. The Greenback is influenced by rising JOLTS figures and Jerome Powell’s comments about the inflation outlook.
Although the US is starting to exhibit signs of disinflation, and the markets anticipate a potential September rate cut, Federal Reserve (Fed) officials remain careful by adhering to their data-oriented approach. Jerome Powell showed some confidence on the inflation outlook but didn’t give clear signs that cuts would arrive sooner.
Daily digest market movers: US Dollar trims gains despite robust JOLTS data
- Job Openings and Labor Turnover Survey (JOLTS) released by the US Bureau of Labor Statistics (BLS) on Tuesday showed that job openings on the last business day of May totaled 8.14 million.
- This was a significant increase from April’s 7.9 million (revised from 8.05 million), surpassing the market’s forecast of 7.9 million.
- Key takeaways from Powell’s remarks include his mentioning that wage increases are moving back down toward more sustainable levels, suggesting that the labor market is cooling off.
- In addition, he added that “Inflation may get back to 2% late next year or the following year,” hinting at a slower-than-expected inflation rate.
- The week ends with a spotlight on June’s Nonfarm Payrolls on Friday. Bloomberg’s consensus reveals an expectation of 190K versus May’s 272K, while the whisper number currently stands at 198K. Wage inflation and the Unemployment Rate will also be closely looked upon.
DXY technical outlook: Bullish momentum struggles though outlook still positive
Despite a muted contraction, the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) portray a robust landscape. The RSI remains above 50 with a slight flattening, while the MACD continues to display green bars, hinting at increased bullish momentum.
Resiliently above its 20, 100 and 200-day Simple Moving Averages (SMAs), the DXY remains steady at the highs observed since May, with both the 106.50 and 106.00 zones viewed as targets. Investors should also consider potential pullbacks toward the 105.50 and 105.00 zones in case bears step in.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.