One of the key market drivers for the US economy and the US Dollar is the monthly employment figures. These figures include the Non-Farm Payroll, the Unemployment Rate, and monthly Average Hourly Earnings. This year so far, the most volatile bearish day was the previous Friday as these figures were released by the Bureau of Labour Statistics. As part of the article we will look at exactly how the figures have changed over the past month, as well as how these may be affecting exchange rates.
The NFP Friday figures came as a shock to the market which caused a quick collapse in the exchange rate. Non-farm payroll, instead of the expected growth to 978,000, fell sharply from 708,000 to 218,000. The unemployment rate rose from 6.0% to 6.1% instead of the expected decline to 5.8%. The largest increase in employment rose in the leisure and hospitality sectors, but these sectors still have 2.9M fewer jobs than before the crisis. The current situation confirms the opinion of US Federal Reserve officials, who previously argued that the American economy is recovering, but the target is still very far away.
Members of both political parties voiced concern that the level of employment was poorer this month than previously expected, possibly due to the high level of benefits which unemployed citizens may be receiving, though this has not formerly been proved as there being a connection. Commenting on this, the President urged companies to boost wages and make workplaces safe to entice workers, but also said people who do not take an offer for a, “suitable job” would lose unemployment benefits unless they have a specific coronavirus-related concern.
On the day of the release we can see the US Dollar Index dropped by over 0.70% in one sole trading day, which is a significant amount for a currency index. The price movement had continued to drop over the first two days of this week as the price reached a two and half month low. This negative price movement was largely driven by the employment figures which shocked the market, but the price action had changed on the release of April’s inflation figures.
Another aspect of the market which has also been in focus over the past 24-hours is the inflation rate which was released yesterday afternoon. April’s data on inflation recorded its growth above the forecasts. The consumer price index reached 0.8% instead of 0.2% MoM expected, and 4.2% instead of the forecast of 3.6% YoY. The core consumer price index rose to 0.9% instead of 0.3% MoM, and 3.0% instead of the expected 2.3% YoY. This is the largest rise in inflation in the past 12 years. The indicators have exceeded the target levels of the US Federal Reserve, but the regulator is unlikely to increase interest rates since it considers a serious increase in prices to be a temporary phenomenon.
Yesterday, the Managing Director of the Regulator, Lael Brainard, said that the demand for labor and its supply are recovering, but problems may arise along the way. She also believes that the latest data from the labor market confirmed the correctness of the regulator’s decision to maintain the monetary policy. Cleveland Federal Reserve Bank President, Loretta Meister, Philadelphia Federal Reserve Bank President, Patrick Harker, and San Francisco Federal Reserve Bank Chairman, Mary Daley, share a similar opinion.
The confirmed levels of inflation provided a considerable amount of support for the US Dollar Index and drove the index to almost fully regain losses from earlier in the week. However, experts are still uncertain whether the currency will be able to maintain bullish movement if the Federal Reserve still remains heavily Dovish on their stance with regards to its monetary policy.
The market is now largely interested to see how the Federal Reserve will react over the next few weeks in response to the inflation data. The market will also be eager to see if May’s Employment figures are likely to again remain negative, or if we will see a continuation of the US employment sector.
