- JOLTs Job Openings data for January disclosed lower-than-expected figures.
- ADP Employment Change for February also came in weak.
- Powell confirms that the Fed needs additional evidence to start cutting.
The US Dollar Index (DXY), trading at the 103.20 level, is experiencing losses on Wednesday. Contributing to these dynamics is the report of soft January’s JOLTs Job Quits and Job Openings reports, along with the ADP Employment Change report for February. Following the testimony before the US Congress, Federal Reserve (Fed) Chair Jerome Powell confirmed that the bank isn’t ready to start cutting rates.
The US labor market data coming on Thursday and Friday will continue shaping the expectations on the Fed’s timing of the easing cycle. As for now, the consensus is that the first cut will likely come in June.
Daily digest market movers: DXY trades lower, anchored by soft labor market data
- JOLTs Job Openings for January turned out to be 8.863M, which was marginally below the expected 8.9M but was virtually identical to December’s figure of 8.889M.
- ADP Employment Change for February displayed an actual increase of 140K jobs but came in below the forecast 150K growth.
- Before Congress, Powell stated that he would like to have more confidence in inflation coming down and that with “a little bit more of data”, the bank would likely be confident to start cutting.
- US Treasury bond yields continue to decline, with the 2-year yield at 4.52%, the 5-year yield at 4.08%, and the 10-year yield at 4.09%.
- On Thursday, markets will monitor weekly Jobless Claims figures, and on Friday, Nonfarm Payroll data from February.
DXY technical analysis: DXY under bearish pressure, bulls fail to recover 200-day SMA
The technical situation reflects the bears gaining ground. The indicator readings on the daily chart show the Relative Strength Index (RSI) maintaining a negative slope and existing in negative territory. Looking at the histogram of the Moving Average Convergence Divergence (MACD), its rising red bars further underline this bearish scenario. This trend is an indicator not only of the selling pressure but also of its increasing strength.
Assessing the DXY’s position in relation to its Simple Moving Averages (SMAs), the DXY is positioned below the 20, 100 and 200-day SMAs. From an overall technical standpoint, this is typically a quite bearish indication, providing further evidence of the dominance of selling pressure at present.
In this light, the short-term technical outlook for DXY appears predominantly bearish, with the selling momentum seemingly overriding the buying momentum.
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.
