The US dollar has pulled back across the majors as US non-farm payrolls fell more than expected in August by 84,000, marking the eighth consecutive month of contraction in US job growth. Perhaps even worse than that, the unemployment rate surprisingly rocketed to a nearly 5-year high of 6.1 percent from 5.7 percent.
On the other hand, average hourly earnings actually picked up 0.4 percent during the month of August, pushing the annual rate up to 3.6 percent from 3.4 percent. The data provides a very skewed picture to the Federal Reserve, as employment growth slows but wages pick up. This will stir fears amongst the FOMC members that surging food and energy prices over the summer has led the public's inflation expectations to rise and thus, has lead them to demand higher wages. It is this "wage price spiral" that any central banker fears most, and as a result, the Federal Reserve is likely to continue sounding hawkish in the commentary. Nevertheless, the sentiment that may ultimately feed through into the US dollar is that the central bank is unlikely to take action anytime soon, as employment conditions are weaker and threats to US economic growth as rising.
US Non-Farm Payrolls (NFPs) – September 5
The reigning champion for economic event risk, the NFPs have seemed to lost their influence over the past few months. However, this won’t last for long. Consumer accounts for 70 percent of the US economy; and there employment and wages direction translate into spending and expansion. With economists forecasting the eighth consecutive contraction from this series (the longest trend since the fallout from the last recession), the optimism surrounding the strong 2Q GDP number will quickly fade. Looking more critically at the last growth report, trade accounted for 3.1 percentage points of the 3.3 percent pace of expansion, while consumer activity stalled. If that turns into a consumer contraction, there is little hope for growth.
Related articles: US NFP And Canadian Employment Data Leverages A USDCAD Setup, Dollar Traders Expect A Fed Hike, But Not This Year
Fed Fund Interest Rates Expectations
Source: Bloomberg
Written by Terri Belkas, Currency Strategist of DailyFX.com
E-mail: tbelkas@dailyfx.com
