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- Stable risk sentiment supports US dollar despite lack of fresh fundamentals.
- Federal Reserve officials paint an upbeat picture of U.S. labor markets despite slow job growth.
- Market adjusts easing expectations; first rate cut expected in September with slightly lower odds.
US Dollar (USD), which is measured by US Dollar Index (DXY), showed a sideways move above the 103.00 level in the Friday session. This comes amid stable risk sentiment and steady trading in the US. stock Index futures rose after Thursday’s rally, with the yield on the 10-year U.S. Treasury note remaining around 4% early in the day.
Despite the adjustments in market expectations for future monetary policy decisions, the US economic outlook continues to point to above-trend growth, suggesting premature market expectations for aggressive easing.
Daily Market Movers Summary: USD Steady as Fed Officials Highlight Healthy Labor Market
- Federal Reserve officials have offered some hints about the labor market, expressing views that the market is not in bad shape despite slow job growth.
- Barkin noted that companies are managing their headcount through attrition or slowing hiring, but they are not laying off employees, indicating cautious but not panicked market behavior.
- Schmid stressed that inflation is almost within the desired range and that the strength of the economy will determine the course of policy.
- However, Goolsbee cautioned that it is important to determine whether the labor market slowdown is temporary or ongoing.
- Weekly jobless claims data also helped calm markets, with initial claims coming in lower than expected at 233K versus 240K expected.
- Market estimates put the odds of an immediate rate cut at less than 10%, and the odds of a September cut at about 80%. These estimates suggest that markets still fully expect 100 basis points of Fed easing by year-end, as well as 175-200 basis points of total easing over the next 12 months.
US Dollar Index Technical Outlook: Bearish Bias Remains as Buyers Struggle to Make a Big Move
The US Dollar Index outlook remains bearish as buyers struggle to make a significant move. The index is still trading below the 20, 100 and 200-day simple moving averages, confirming the overall bearish bias.
The momentum-based Relative Strength Index (RSI) remains below 50, indicating continued selling pressure, while the Moving Average Convergence Divergence (MACD) continues to print lower red bars. Despite the week’s gains, the overall technical outlook has not improved significantly, with the potential for a correction still present.
Support: 103.00, 102.50, 102.20 Resistance: 103.50, 104.00
Frequently Asked Questions About Employment
Labor market conditions are a key component of an economy’s health and are therefore a key driver of currency valuation. High employment, or low unemployment, has positive effects on consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market—one in which there are not enough workers to fill vacancies—can also have an impact on inflation because low labor supply and high demand lead to higher wages.
The pace of wage growth in the economy is of great importance to policymakers. Higher wage growth means that households have more money to spend, which typically leads to higher prices for consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of core and persistent inflation as wage increases are unlikely to be reversed. Central banks around the world pay close attention to wage growth data when making monetary policy decisions.
The weight that each central bank gives to labor market conditions depends on its objectives. Some central banks have explicit labor market mandates that go beyond controlling inflation. For example, the US Federal Reserve has a dual mandate of promoting maximum employment and price stability. Meanwhile, the European Central Bank’s sole mandate is to keep inflation under control. However, despite its mandates, labor market conditions are an important factor for policymakers because they are an important measure of economic health and have a direct relationship with inflation.
