Daily Market Update

More Jobs, but Lower Wage Growth Hurts Dollar

July 06, 2018

The U.S. Dollar continued to tumble to close this week after Non-Farm Payrolls and Employment data were released this morning.

Overview

The official NFPs revealed an addition of 213K jobs over 195K expected, the Unemployment Rate rose to 4.0% from 3.8%, and Average Hourly Wages only grew by 0.2% instead of the estimated 0.3%. It seems like the combination of underwhelming wage growth and trade issues with tariffs are now hurting the buck. The greenback is almost half a percent weaker against major counterparts after the indicator news.

This week witnessed the greenback’s fall after it seemed very resistant to negative headlines on free trade and the potential for economic problems based on retaliation from other countries. It is clear that the Fed is on a tightening path, but the economic progress has to be there for those increments in interest rates to be merited. Wages dictate the ability for people to consume and the lack of significant growth in the income sector dampens the USD’s prospects. We feel July could see the dollar hit the brakes.

 

EUR

Positive numbers in the form of Retail Sales have pushed the Euro higher along with hawkish commentary from European Central Bank officials in regards to getting away from intervention in financial markets. Furthermore, the idea of higher interest rates in 2019 is helping Euro-bulls place longer-term bets. If indeed there is a return to good data in the second half of the year for the Euro-zone and political instability diminishes in Italy and Germany, the shared currency could see a major recovery towards levels seen at the start of 2018.

 

GBP

The Pound has been swinging, primarily after comments from Bank of England Governor Mark Carney, who suggested a more confident outlook on the economy. Thus, chances of a hike for the August 2nd meeting have increased to 81.3%. While that sounds quite rosy for “cable,” the currency still has to deal with the uncertainty over Brexit especially after Germany’s leader Angela Merkel called Prime Minister Theresa May’s tentative customs plan “unworkable.” The deadline for a deal to be completed for Brexit is in 9 months. Sterling investors beware.

 

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