US Dollar tries to snap losing streak with upbeat Jobless data ahead of Friday’s NFP

  • The US Dollar trades broadly sideways and even pops marginall in the green on supportive Jobless Claims release.
  • Traders took the Fed’s rate decision and rhetoric as less hawkish than feared. 
  • The US Dollar Index holds ground above 105.50 and pushes back on bearish bets.

The US Dollar (USD) is starting to push back against some bearish moves from earlier this week on Thursday, after a rollercoaster ride on Wednesday following the Federal Reserve’s (Fed) monetary policy decision. The big batch of economic data on Wednesday together with the Fed’s policy meeting and Chairman Jerome Powell’s speech was the dream scenario for an uptick in the US Dollar Index (DXY), but this scenario failed to materialize and the index fell to 105.43, near the low of this week. Although it looked for a moment that the US Dollar could weaken further, it still holds ground and is likely to stay there until the US Nonfarm Payrolls data on Friday as the next catalyst. 

On the economic data front, some appetisers ahead of the Nonfarm Payrolls print and the broader employment report on Friday. Traders can feast on the weekly Jobless Claims numbers and the Challenger Job Cuts number to look for clues if those announced layoffs during the recent earnings season are starting to weigh on the labor market. Though, nothing to be found in this Thursday’s data with both Challenger data and weekly Jobless Claims all falling very much in line of expectatoins, not pointing to any massive layoffs or unwinding of tightness in the job market. 

Daily digest market movers: Awaiting Nonfarm Payrolls Friday

  • A substantial move on the charts in USD/JPY and EUR/JPY on Wednesday, pointing to a possible intervention again from either the Bank of Japan (BoJ) or the Ministry of Finance, though no official confirmations were issued. 
  • Kickoff this Thursday was at 11:30 GMT with the April Challenger Job Cuts report. the previous number was at 90,309 and came in for April at 64,789.
  • At 12:30 GMT, the bigger part of the data for Thursday came in:
    • Weekly Initial Jobless Claims came in stable at 208,000.
    • Continuing Claims were unchanged as well against last week’s number at 1.774 million.
    • The US Goods and Trade balance from March is to be released:
      • The Goods Trade Balance deficit was previously at $91.8 billion and fell further to 92.5 billion.
      • Goods and Services Trade Balance shrunk from a deficit of $68.9 billion to a deficit of $69.4 billion. 
      • Nonfarm Productivity growth for the first quarter of 2024 grew from 3.5% to 4.7%.
      • Unit Labor Costs jumped from 0.0% to 3.0%.
  • Near 14:00 GMT, the monthly factory orders for March are expected to increase by 1.6%, higher than the 1.4% advance seen a month earlier.
  • US equities get to keep their gains after the US Opening Bell and see the Nasdaq leading the way up with a near 1% gain for this Thursday. 
  • The CME Fedwatch Tool suggests a 91.1% probability that June will still see no change to the Federal Reserve’s fed fund rate. Odds of a rate cut in July are also out of the cards, while for September the tool shows a 56% chance that rates will be lower than current levels.
  • The benchmark 10-year US Treasury Note trades around 4.61%, a touch higher from this Thursday morning. 

US Dollar Index Technical Analysis: All about jobs

The US Dollar Index (DXY) had a roller coaster ride on Wednesday while European markets were closed for Labor Day. Despite the moves and selling pressure in the DXY, the floor at 105.50 still holds despite three failed breaks in the past two weeks. Dollar bulls are buying at these levels clearly, as support is still there. This could result in a breakout soon, with either bulls stepping away and letting the DXY drop or sellers giving up, seeing DXY shooting higher. 

On the upside, 105.88 (a pivotal level since March 2023) needs to be recovered again with a daily close above it, before targeting the April 16 high at 106.52 for a third time. Further up and above the 107.00 round level, the DXY index could meet resistance at 107.35, the October 3 high. 

On the downside, 105.12 and 104.60 should act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.40 and 104.10, respectively. If those levels are unable to hold, the 100-day SMA near 103.75 is the next best candidate. 

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.