Stellar labor lifts U.S. Dollar higher, but wages stagnant
JULY 05, 2019
The U.S. Dollar is trading in favorable ranges following the 4th of July holiday and the release of positive labor data this morning.
The Employment Situation revealed that Non-Farm Payrolls increased by 224K over 160K expected while Manufacturing Jobs came in almost six times the estimated 3K at 17K for June. Noteworthy is that both the Unemployment and Labor Force Participation rates increased by 0.1%, 3.7%, and 62.9% respectively. One figure that did not improve was Average Hourly Earnings, increasing by just 0.2%, further evidence of no significant wage growth.
The interpretation thus far is that the Fed’s case for cutting interest rates at their July 31st meeting may not be strong enough. Clearly, labor markets are solid and payrolls are increasing across manufacturing as well as services. One thing is that no wage growth also explains little to no inflationary growth and loose monetary could aid that. Nevertheless, the need to cut may fade and that will play as a greenback positive. -At the time of writing, dollar rallying primarily against major counterparts.
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The Euro is losing ground as economic data make a case for waiting for another Fed meeting or two until lowering interest rates. Additionally, recent slumps in Euro-bloc numbers, particularly in Germany, have increased the chances that the European Central Bank will act in some way to provide easing measures since its interest rates are at 0.0% or negative, such as the deposit facility at (-0.4%).
Since the news Wednesday of Christine Lagarde’s nomination to replace Mario Draghi, traders and economists have pointed out that she will follow his legacy and intervene to push for economic stability. This all downplays the shared currency, which has dipped by 1.2% thus far in July.
The Mexican Peso is up by 1.0% this week defying some turbulence in oil prices, but mostly benefiting from a sense that future production cuts by OPEC will provide a boost economically. Furthermore, progress perceived after the G-20 meeting added fuel to it as a high-yielding currency with plenty on the line when it comes to avoiding barriers to trade such as tariffs.
Better relations with the U.S. administration after border cooperation that took the threat of tariffs away also made market participants confident that USMCA will be ratified soon by all three North American countries. We believe the currency remains vulnerable until the ratification of the trade pact. Any delay to this will sink MXN.