Final Confirmation for a June Rate Hike

2 June, 2017

The crucial US labour market data for May will be released today, June 2nd at 13:30 BST. It includes non-farm payrolls, unemployment rate and average hourly earnings. Please note that the release of US labour market data will likely cause volatility for USD, USD crosses and commodities.

Non-farm payroll in April was 211K, beating the shocking low downward revised reading of 79K in March. The unemployment rate in April hit a record low of 4.4%, not seen since May 2007.

US unemployment rate has seen a downtrend since 2010 and has stabilised in a range between 4.6% – 5% since early 2016. The readings over the past two months had continued reaching even lower than 4.6%, indicating the US labour market remains sound.

Average wages have seen an upswing since early 2015, however seeing a moderate slowdown over the past three months.

Be aware that, the revision figures are also significant which also affect data performance. In addition, based on prior experience after the release of the data, market trends sometimes reverse within 1-2 hours after the initial move.

The Fed sees the labour market as close to full employment. The FOMC June meeting will be held on Wednesday June 14th. Per the CME FedWatch tool, the probability for a rate hike in June has rose to 95.8%. If the incoming US labour market data overall in line with or better than consensus, despite the uncertain political climate, markets will likely see a June rate hike to happen nearly for sure, which will likely strengthen USD.

Originally markets expect two more rate hikes by end of the year: in June and September respectively. Nevertheless, per the FOMC May meeting minutes released on May 25th, the Fed sees to raise rates once again is ‘soon be appropriate’, and considers it prudent to wait for further evidence for subsequent rate hikes. That said, it will likely take an extended period to raise rates after a June rate hike, unless seeing incoming data continuously being robust.

On Thursday June 1st, the dollar index bounced around 0.87%, breaking the 97.00 resistance level. This morning in early European session, USD consolidates ahead of NFP, trading around 97.15.

On Thursday, USD/JPY rallied 0.21% hitting a 1-week high of 111.70. EUR/USD fell by 0.27%. AUD/USD plunged by 0.75%. NZD/USD fell by 0.31%. Spot gold fell by 0.23% on Thursday and hit a 1-week low of 1258.92 on Friday morning.


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