Today market’s attention was on the NFP which came slightly above expectations but did decline from last month, confirming the weakness in the US labour market. The USD wobbled initially, but is on a retreat now, as odds of a rate cut by the FED increase on such weak economic data.

June 2024 US employment data from the non-farm payroll’s report

Prior to the report, the Federal Reserve’s pricing for year-end anticipated 49 basis points of easing with an 80% likelihood of a rate cut in September. Post-report, the pricing increased to 50 basis points, but the odds for a September cut remained unchanged. This report is viewed as dovish, especially considering the underperformance in private payrolls, which I had flagged as a key indicator to watch.

After the non-farm payrolls data was released, the US dollar experienced a decline. While the headline figure surpassed expectations, it did not tell the whole story. The USD/JPY exchange rate shows the market’s uncertainty in responding to the non-farm payrolls report. Despite the headline number exceeding forecasts, the report appears dovish, with substantial downward revisions, increased unemployment, and lackluster private payrolls.

Ian Lyngen, a fixed income strategist at BMO, observed that the labor market was seen as softer overall, though not significantly weaker. Following the data release, the USD/JPY pair initially surged by about 50 pips but then retreated after testing the 50 SMA (yellow) on the H4 chart, which now seems to act as resistance, suggesting a potential trend reversal. This indicates that some nervousness or bets on dollar weakness may have been adjusted following the report.

Treasury yields have decreased across the curve, with 2-year yields falling to 4.64% from 4.67%, indicating a more cautious stance from the bond market. It’s becoming increasingly clear that the US economy is slowing due to rising interest rates. While investments in AI might help offset some of this slowdown, they may also be concealing other economic weaknesses. Additionally, the market’s reaction to the data highlights the complexity of the current economic environment, where multiple factors are at play, influencing investor sentiment and market movements.

USD/JPY Live Chart