US jobs growth slows sharply in July. Nonfarm payrolls rise by 114,000, missing estimates of 175,000. Unemployment rate climbs to 4.3%. Wage growth eases. Dollar weakens significantly.
US Nonfarm Payrolls
In July, the US Nonfarm Payrolls (NFP) rose by 114,000, significantly below the expected 175,000, according to the Bureau of Labor Statistics (BLS). This increase is also a decline from the revised 179,000 jobs added in June, initially reported as 206,000. The unemployment rate climbed to 4.3% from 4.1% in June, while the labor force participation rate slightly increased to 62.7% from 62.6%. Additionally, the annual growth in Average Hourly Earnings slowed to 3.6% from 3.8%.
Revisions for previous months showed a reduction in job gains, with May’s employment figures adjusted down by 2,000 to 216,000 and June’s by 27,000 to 179,000, totaling 29,000 fewer jobs than initially reported. The disappointing jobs report triggered significant selling pressure on the US Dollar (USD), causing the USD Index to drop 0.65% to below 103.70. The USD weakened against most major currencies, notably falling 1.25% against the Japanese Yen.
This labor market report, coupled with the Federal Reserve’s recent decision to hold rates steady at 5.25%-5.5%, may prompt further interest rate cuts. The Fed acknowledged progress towards its 2% inflation goal, suggesting that economic assessments and employment data will continue to influence future monetary policy decisions.
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Japanese Yen
The BoJ’s unexpected hawkishness has prompted the market to re-evaluate its expectations for Japanese monetary policy, influencing the JPY’s value. Upcoming Japanese economic data releases will either confirm or contradict the BoJ’s signals, adding pressure to the USD/JPY pair. This week, rising market expectations of multiple Fed rate cuts have further pressured USD/JPY, with a medium-term target of 145 likely to be reached sooner than anticipated. Depending on next week’s economic data, forecasts for USD/JPY may be adjusted.
Starting July at its weakest in over 30 years (162 to the USD), the JPY surged over 9%, settling below 148 per USD. NBC FX analysts Stéfane Marion and Kyle Dahms attribute this strength to the unwinding of carry trades and the BoJ’s surprise rate hike to a 15-year high. Additionally, the BoJ’s shift towards reducing asset purchases marks a significant policy change.
With inflation still above target, Japan’s contrasting monetary policy compared to other major economies, particularly if the Federal Reserve begins easing in September, could bolster the JPY further. Despite the rapid recent gains, analysts see potential for continued JPY appreciation later this year.
Gold Price Drops Amid Fed Rate Cut Speculation
Gold prices fell to $2,420, down nearly 0.80% from a two-week high of $2,477, following weaker-than-expected US economic data. July’s US Nonfarm Payrolls showed only 114,000 jobs added versus the forecasted 175,000, with the unemployment rate rising to 4.3%. This led to a drop in US Treasury yields and the US Dollar as investors anticipated quicker rate cuts by the Federal Reserve
US Treasury yields fell over 15 basis points to 3.815%, and the US Dollar Index dropped over 1.13% to 103.16. Banks such as Bank of America now expect the first rate cut in September, with Citi and JP Morgan predicting a 50 basis point cut in September and November.
Main Economic Events for next week:
- ISM Services PMI (08/05/2024 14:00 USD)
- Description: This index measures the economic health of the US service sector. A higher PMI indicates expansion, while a lower PMI suggests contraction. The report is closely watched for insights into the overall economic conditions and can influence market expectations about Federal Reserve policy.
- RBA Interest Rate Decision (08/06/2024 04:30 AUD)
- Description: The Reserve Bank of Australia’s decision on interest rates will be crucial for the AUD. A rate hike or cut will affect market expectations for the Australian economy and impact the currency’s value.
- RBA Monetary Policy Statement (08/06/2024 04:30 AUD)
- Description: This statement provides details on the RBA’s monetary policy stance and economic outlook. It offers insights into future policy directions and economic conditions, influencing both the AUD and broader market sentiment.
- Unemployment Rate (08/06/2024 22:45 NZD)
- Description: New Zealand’s unemployment rate will provide a key indicator of labor market health. A significant change could impact the NZD and market expectations regarding the Reserve Bank of New Zealand’s future policies.
- Consumer Price Index (YoY) (08/09/2024 01:30 CNY)
- Description: This measure of inflation in China will impact expectations for future monetary policy by the People’s Bank of China. Higher inflation might prompt policy adjustments, affecting the CNY and broader economic outlook.
- Harmonized Index of Consumer Prices (YoY) (08/09/2024 06:00 EUR)
- Description: This inflation indicator for the Eurozone measures the change in prices over the past year. It is critical for assessing inflationary pressures and guiding the European Central Bank’s monetary policy.
- Net Change in Employment (08/09/2024 12:30 CAD)
- Description: This report measures the monthly change in the number of employed people in Canada. A strong report can affect the CAD and reflect broader economic conditions.
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