The dollar appeared set to end Thursday's session on a relatively high note after forecast-beating U.S. non-farm payrolls data lifted Treasury yields and reduced Fed rate-cut bets. U.S. non-farm payrolls showed growth of 147k in June, easily beating the 110k forecast, while upward revisions to previous months flattered the result. The unemployment rate also eased by a tenth, confounding the Reuters consensus forecast for a rise by the same amount.
After the dust settled, the market was discounting slightly more than 1bp of easing at the July Fed meeting versus more than 6bp before the data. For the September meeting, the market foresees just 18.5bp of easing versus 29bp ahead of payrolls.
Weekly initial jobless claims fell unexpectedly while the ISM non-manufacturing survey indicated that the service sector expanded slightly more than forecast in June. Atlanta Fed President Raphael Bostic said that inflation flowing from Trump administration trade and other policies could last longer than expected, in part because of the drawn out nature of the discussions Also helping the dollar, particularly versus the euro, Belgium's central bank governor, Pierre Wunsch, told Germany's Handelsblatt newspaper in an interview published on Thursday that the risk of inflation is pointing downwards rather than upwards. The accounts of the ECB's June 3-5 meeting showed that euro zone policymakers cut rates last month to prevent an unwarranted tightening of monetary conditions and in the face of elevated uncertainty around trade.
The ECB accounts also said that higher tariffs and the recent appreciation of the euro should weigh on exports.
Though the dollar was buoyed throughout the session, enthusiasm for the U.S. currency was contained as traders prepared for a long U.S. holiday weekend and investors scrutinized the details of the non-farm payrolls report, which may not have been as strong as the headline beat suggested.
In particular, private payrolls posted growth of 74k -- their smallest rise since a fall last October, with the difference being made up by a 73k rise in the government sector. Participation also weakened by a tenth.
Meanwhile average workweek hours slipped, while average earnings growth declined, lending a Goldilocks element to the report by suggesting diminished inflation pressures.
Risk markets appeared to take the report as a win, with the S&P 500 up 0.8% in New York afternoon trade.
U.S. Treasury yields were up 3-9bp across the curve, focused on the Fed-sensitive front end, which flattened the 2s-10s curve by 3.6bp.
WTI crude fell 1.02% as global trade uncertainty gnawed away at the market ahead of the 90-day pause on the implementation of higher U.S. tariffs on July 9, with several large trading partners yet to reach deals, including the European Union and Japan, raising concerns about the economic impact and implications for fuel demand.
Copper retreated 1.12%, hurt by the post-payrolls dollar resurgence. Similarly, gold fell 0.7%, undermined by the receding U.S. rate-cut bets.
Heading toward the close: EUR/USD -0.43%, USD/JPY +1.03%, GBP/USD +0.08%, AUD/USD -0.27%, DXY +0.42%, EUR/JPY +0.54%, GBP/JPY +1.07%, AUD/JPY +0.77%.(Burton Frierson )
