NFP Analysis: No recession for America's labor market, more dollar gains eyed

Good news is bad news – for stocks, but not the dollar, and more may be in store. The US has reported another impressive month of job growth, 372,000 in June, on top of only a minor downward revision of 6,000 for May. Expectations stood at around 270,000 and the "whisper number" was 243,000. Job growth is strong. 

The US might have contracted in the first half of 2022 – a recession – but it is far from feeling that way for American workers. 

The unemployment rate remained at 3.6% as expected, but the U-6 "real unemployment rate" – taking people too discouraged to look for a job into account – fell to 6.7%. That is another piece of good news. 

What about wages? Salary increases are well-correlated with core inflation that the Fed is watching. Average earnings grew by 0.3% MoM as expected and 5.1% YoY, 0.1% above estimates. In any case, it substantially exceeds the Federal Reserve's 2% target. 

The Fed is focused is on fighting inflation – and it is set to remain high according to this jobs report. That means a faster pace of increase is borrowing costs is needed, and perhaps also promises for doing more in the future. What doesn't work with a terminal rate of 3% may work with 3.5%. 

For the US dollar, this is great news, implying more gains are in store. As usual, the best expression of the response to US data is in USD/JPY, but it is hard to see EUR/USD recovering from its fall toward parity. 

The next big thing to watch is the Consumer Price Index (CPI) report due out on Wednesday, July 13. Fresh inflation data has become more important than Nonfarm Payrolls. A monthly increase of 0.6% is expected in Core CPI YoY, and any move up or down may make a significant difference.