Economic data remains key for the dollar with Non-farm Payrolls in focus

The US dollar remains under pressure as US economic data continues to underwhelm. On the first week of the month there is always a clutch of key data to help form traders’ views for the coming weeks, with Non-farm Payrolls clearly a highlight on Friday. We take a look at the potential impact and outlook for forex, equities and commodities markets in the coming days.

Torn dollar

Markets can be dull over the summer as shown by low volatility seen recently. Traders and portfolio managers leave their desks for the beach with volumes and volatility negative impacted. However interest could be sparked in this week as a clutch of key data points come along with the continued impact of earnings season. The big focus this week will be on Non-farm Payrolls which have been mixed of late. The US continues to struggle to generate the inflation that would fully justify the confidence of the Federal Reserve. Wage growth is stuttering around 2.5% and with inflation showing little signs of picking up, the Fed’s faith in the Phillips Curve kicking in is continually being called in to question. We are told that the labor market is tight, something that should start generating inflation. There are several features of the US Employment Situation report to keep an eye on therefore. Headline unemployment has looked to stabilise recently, whilst U6 underemployment ticked higher to 8.6% last month (there have not been two consecutive rises on U6 since 2012). However, headline job creation was well over 200,000 last month, something more akin to an improving labor market rather than a tight one, whilst earnings growth is a struggle at 2.5%, still showing no improvement in the past year. The longer wages struggle, the more questionable the Fed’s speed of tightening becomes. All the while yields remain subdued and the dollar under pressure.

 


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