The U.S. dollar fell Friday after data suggested that U.S. labor market, though still tight, may be cooling off as rising interest rates gradually weaken the economy.
The ICE U.S. Dollar Index DXY, -0.84% on Friday fell to as low as 102.4, the lowest level since June 27, according to Dow Jones market data.
The U.S. created 209,000 new jobs in June to mark the smallest gain in more than two and a half years, the government said. Economists had forecast an increase of 240,000 new jobs, according to a Wall Street Journal survey.
Employment gains in May and April were also marked down by a combined 110,000.
Still, hourly pay rose a sharp 0.4% in June, which is higher than expected and left the increase over the past year at 4.4%. Wages were rising less than 3% a year before the pandemic.
“Today’s US labour report was rather mixed, although markets appeared to focus on the negatives,” according to Matthew Ryan, head of market strategy at financial services firm Ebury.
“We’re not seeing evidence of a dreaded wage-price spiral just yet, though stubbornly high earnings growth may be a nagging concern for Fed members, and a clear rationale to delay the timing of policy rate cuts into at least 2024,” Ryan wrote in emailed comments.
Fed-funds futures traders continue to price in a more-than-90% probability the Federal Reserve will raise its key interest rate by 25 basis points to a range of 5.25% to 5.5% later this month, while expectations for another quarter percentage point move in either September or November faded somewhat after the payroll data.
Kit Juckes, strategist at Societe Generale, said that “the US data point to an economy that is slowly slowing from a very fast growth rate.”
“A very tight labour market isn’t really getting any less tight (the unemployment rate at 3.6% is 2.8% below the 50-year average and just 0.2% above the 50-year low). So perhaps it isn’t surprising that wage growth has stopped falling and is holding up at 4.4%,” noted Juckes in emailed comments.
“The dollar was softer ahead of the data than recent rate/yield moves might have suggested; that’s to say that the very close correlation between USD/JPY and 5 year yield differentials has broken down a bit, and the jobs data narrow that gap slightly,” said Juckes.
U.S. stocks trades mostly lower on Friday, with the Dow Jones Industrial Average DJIA, -0.02% down 0.2% and the S&P 500 SPX, +0.27% down less than 0.1%, according to FactSet data. The Nasdaq Composite COMP, +0.54% gained 0.1%.