The US employment report was weaker than expected in June, led by a very soft nonfarm payrolls report. At the same time, the unemployment rate fell and wage growth improved.
Nonfarm Payrolls Falls to Four-Month Low
US job growth was a disappointment, as nonfarm payrolls fell to just 57 thousand, barely half of the market estimate of 110,000. There was more bad news as the May report was revised sharply lower to 129,000, down from the previously reported 172 thousand in May. Still, the prior three months showed strong gains in payrolls and one weak report on its own does not signal a negative shift in labor conditions. The unemployment rate eased slightly to 4.2%, down from 4.3% in May, which was also the market estimate. Wage growth rose slightly in June to 3.5% year-on year, up from 3.4% in May.
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Fed Expected to Hold Rates at July Meeting
The money markets don’t seem bothered by the weak payrolls figure, as the probability of a rate hike, which stood at 29% a day ago, fell to 17% after the jobs report, according to CME’s FedWatch. This means that investors expect the Federal Reserve to hold rates at their current 3.50%-3.75% range at the rate meeting on July 29.
Inflation has been running above the Fed’s 2% target for the past five years, and the recent surge ,which has been led by the Iran war and tariffs, has the Fed worried. Fed Chair Kevin Warsh favors lower rates, but with inflation currently over 4%, a rate cut is unlikely before 2027.
US Dollar Lower Across the Board, Stock Market Posts Gains
The improving US Dollar has responded with losses against all the major currencies on Thursday following the strong employment report.
The GBP/USD currency pair has climbed 0.64%, and is trading at 1.3360. The EUR/USD is up 0.57%, trading at 1.1442.
The Japanese yen is on a tear today, as USD/JPY has declined by 0.90%, trading at 161.12. However, the yen’s sharp gains occurred after a suspected intervention by Japan in the forex markets, as the yen has tumbled to 40-year lows against the US dollar.
The US stock market, which has just opened, is in positive territory.
The Nasdaq 100 Index has climbed 123 points (0.41%) at 29,932.
The S&P 500 Index is up 42 points (0.58%) at 7525.
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