US Nonfarm Payrolls Disappoint, Dollar Falls Sharply
The US dollar fell sharply on Thursday (July 2nd) and headed for its worst daily decline since late April. Pressure arose after the US jobs report came out weaker than expected, dampening expectations that the Federal Reserve would raise interest rates anytime soon.
The US dollar index, which measures the greenback against six major currencies, fell around 0.5% to 100.86. This weakening occurred after the market assessed that the latest jobs data gave the Fed room to hold policy longer, especially as labor market pressures began to ease.
The Nonfarm Payrolls report showed the United States economy added only 57,000 jobs in June, well below market expectations of around 114,000. This figure also slowed from the downwardly revised 129,000 gain in May. Employment increased in the professional and business services, social assistance, and healthcare sectors, but declined in the leisure and hospitality sector.
Despite the weak job creation, the unemployment rate fell to 4.2% after remaining at 4.3% for the previous three months. On a three-month average, US payrolls are now hovering around 111,000, indicating the labor market is indeed slowing but not yet in a full-blown recession.
Labor data throughout this week painted a mixed picture. US job openings briefly surged to a two-year high in May, while Challenger data showed a decline in layoffs in June. However, the ADP report noted weakening private sector job growth, before Thursday's Nonfarm Payrolls (NFP) data finally reinforced the view that labor momentum is cooling.
On the monetary policy front, the Fed previously emphasized that its primary focus remains on controlling inflation. Fed Chairman Kevin Warsh said the central bank would abandon its forward guidance approach and rely more heavily on data. At a central bank forum in Portugal, Warsh also noted that inflation risks have declined in recent weeks.
The decline in oil prices following the interim agreement between the United States and Iran has helped ease inflationary pressures. Oil prices had previously spiked due to the conflict, but then fell rapidly after the Strait of Hormuz reopened and supply flows began to recover.
With energy inflation easing and the labor market cooling, market participants have trimmed expectations for a Fed rate hike. The CME FedWatch shows the likelihood of the Fed holding interest rates is increasing, while the likelihood of an imminent rate hike is decreasing. Short-term Treasury yields, which are sensitive to interest rates, also fell.
On the other hand, the Japanese yen strengthened sharply against the US dollar. USD/JPY briefly fell to 160.64 before settling around 161.12. The yen's strengthening was fueled by speculation that Japanese authorities were conducting rate checks, a move often viewed by the market as an early signal of foreign exchange intervention.
However, there has been no official confirmation from the Bank of Japan or the Japanese Ministry of Finance regarding this move. Tokyo has repeatedly warned that it is ready to take action against yen movements deemed overly speculative, especially after the Japanese currency hit its weakest level since 1986.
Meanwhile, the Australian dollar strengthened by around 0.4% to US$0.6920, although it remains near a three-month low. The Aussie's gains were restrained after Australia recorded its largest trade deficit in 11 years in May, driven by a decline in gold and iron ore exports amid weakening global commodity demand.
Overall, the weakening US dollar reflects changing market expectations regarding the Fed's interest rate direction. If subsequent economic data continues to show a slowdown, the dollar risks a further correction. However, if inflation strengthens again or Fed officials signal a hawkish stance, the greenback could still find new support. (arl)
Source: Newsmaker.id
