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- The US dollar recovered after slight losses following the release of the ISM manufacturing PMI data.
- Dollar finds support thanks to higher US Treasury yields.
- Signs of economic contraction are beginning to appear on the US economic scene, which may justify bringing forward the cuts.
As the week begins, the US dollar-based DXY has managed to erase daily losses and is currently holding near 105.90, following the recent ISM manufacturing PMI numbers. Sustained high levels of US Treasury yields continue to give strength to the DXY.
Clear signs of lower inflation are emerging in the US economic climate, boosting confidence among market players about a September interest rate cut. Federal Reserve However, Fed officials are moving cautiously and continuing to stick to their data-driven stance.
Daily Market Movers Summary: USD Recovers Despite Weak ISM PMIs, Focus on Labor Market Data
- The Institute for Supply Management’s manufacturing purchasing managers’ index fell to 48.5 in June from 48.7 in April. That was below market expectations of 49.1.
- The employment index, part of the purchasing managers’ survey, also fell from 51.1 points in May to 49.3 points.
- On the other hand, the new orders index improved from 45.4 to 49.3.
- The big news this week comes with the release of nonfarm payrolls data for June on Friday. According to the Bloomberg consensus, it is expected to come in at 190,000 jobs compared to 272,000 in May.
- Wednesday’s ADP private sector payrolls report will be equally important, with 158,000 jobs expected, up from 152,000 in May.
- The release of the minutes from the May FOMC meeting should provide deeper insights into the Fed’s dovish stance.
US Dollar Index Technical Outlook: Continued Positive Momentum, Index Eyeing Higher Levels
Keeping positive ProspectsDespite the slight fluctuations, the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are depicting a stable state. The RSI continues to hold above the 50 level with a slight flattening, while the Moving Average Convergence Divergence (MACD) maintains its green outlook, indicating a slight pullback in the bullish momentum.
The US Dollar Index continues to trade at higher levels since May, trading above its 20-, 100- and 200-day simple moving averages, with the 106.50 and 106.00 areas in its sights. However, observers should also keep an eye on the 105.50 and 105.00 areas in case of potential declines.
Frequently Asked Questions About Non-Agricultural Sector Salaries
Nonfarm payrolls data is part of the monthly jobs report released by the U.S. Bureau of Labor Statistics. The nonfarm payrolls component specifically measures the change in the number of people employed in the United States during the previous month, excluding agriculture.
Nonfarm payrolls can influence the Fed’s decisions by providing a measure of how well the Fed is meeting its mission of promoting full employment and a 2 percent inflation rate. A relatively high nonfarm payrolls number means that more people are working and earning more money and therefore potentially spending more. On the other hand, a relatively low nonfarm payrolls result could mean that people are struggling to find work. The Fed typically raises interest rates to combat high inflation caused by low unemployment, and lowers them to stimulate a sluggish labor market.
Non-farm payrolls are generally positively correlated with the US dollar. This means that when payrolls numbers are higher than expected, the US dollar tends to rise and vice versa when they are lower. Non-farm payrolls impact the US dollar by virtue of their impact on inflation, monetary policy expectations, and interest rates. Higher non-farm payrolls usually mean that the Federal Reserve will be more hawkish, which supports the US dollar.
Non-farm payrolls are generally negatively correlated with the price of gold. This means that higher-than-expected payroll numbers will have a depressing effect on the price of gold and vice versa. Higher non-farm payrolls typically have a positive effect on the value of the US dollar, and like most major commodities, gold is priced in US dollars. Therefore, if the US dollar gains value, it takes fewer dollars to buy an ounce of gold. Higher interest rates (which have typically helped drive higher non-farm payrolls) also make gold less attractive as an investment compared to holding cash, where the money will at least earn interest.
The nonfarm payrolls report is just one component of a larger jobs report, and it can be overshadowed by the other components. Sometimes, when nonfarm payrolls come in above expectations but average weekly earnings are below expectations, the market ignores the potential inflationary impact of the headline result and interprets the earnings decline as deflationary. The participation rate and average weekly hours components can also influence market reaction, but only in rare events such as the “great resignation” or a global financial crisis.
