US Dollar under pressure after US July jobs report

The US Dollar came under renewed selling pressure on Friday.
The US Dollar Index declined below 102.00 and erased a large portion of weekly gains.
US July jobs report showed a 187,000 increase in Nonfarm Payrolls in July.

The US Dollar started to weaken against its rivals in the second half of the day on Friday. The USD Index – which tracks the USD's valuation against a basket of six major currencies – retreated below 102.00 after touching its highest level in nearly a month above 102.80 in the European session on Thursday.

Nonfarm Payrolls in the US rose 187,000 in July, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in weaker than the market expectation of 200,000. "The change in total nonfarm payroll employment for May was revised down by 25,000, from +306,000 to +281,000, and the change for June was revised down by 24,000, from +209,000 to +185,000," the BLS further noted in its press release.

Other details of the jobs report revealed that the Unemployment Rate edged lower to 3.5% from 3.6% and the annual wage inflation, as measured the changed in Average Hourly Earnings, held steady at 4.4%, higher than the market forecast of 4.2%. Finally, the U6 Unemployment Rate declined to 6.7%, while the Labor Force Participation rate stood unchanged at 62.6%.

Daily digest market movers: US Dollar weakens after weak NFP print

Commenting on the market reaction to US jobs data, "the US Dollar fell in response to the data, which came out below expectations, and on top of downward revisions. If the Fed gets what it wants, it does not need to act – no more hikes," said FXStreet Analyst Yohay Elam. "On the other hand, wage growth is higher than it was before March 2020 – at 4.4% YoY, salaries continue driving underlying price pressures higher. That means a rate hike in September cannot be fully ruled out."
In an interview with Bloomberg on Friday, Chicago Federal Reserve Bank President Austan Goolsbee noted that the job market was getting into balance and saşd that the was hopeful that inflation could come down without a major recession.
The number of first-time applications for unemployment benefits in the US rose to 227,000 in the week ending July 29, the US Department of Labor reported on Thursday. Additionally, Unit Labor Costs rose 1.6% in the second quarter, following the 3.3% increase recorded in the first quarter and much lower than the market expectation of 2.6%.
Other US data revealed that the economic activity in the US service sector continued to expand in July, albeit at a softer pace than in June. The ISM Services PMI declined to 52.7 from 53.9, compared to the market forecast of 53. Further details of the publication revealed that the Employment Index edged lower to 50.7 from 53.1, while the Prices Paid Index climbed to 56.8 from 54.1, pointing into increasing input price pressures.
The US private sector employment rose by 324,000 in July, the data published by Automatic Data Processing (ADP) showed on Wednesday. This reading surpassed the market expectation for an increase of 189,000 and provided further support to the USD. June's figure was revised lower from 497,000 (the highest since February 2022) to 455,000.
The economy is doing better than expected and a healthy labor market continues to support household spending,” said Nela Richardson, chief economist, ADP. “We continue to see a slowdown in pay growth without broad-based job loss.”
Global rating agency Fitch announced late Tuesday that it downgraded the US government's credit rating to AA+ from AAA, citing anticipated fiscal deterioration over the next three years and a high and growing general government debt burden. This development caused market participants to stay away from risk-sensitive assets, allowing the USD to find demand as a safe haven.
The number of job openings on the last business day of June stood at 9.58 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday. This reading followed 9.61 million openings in May and came in slightly below the market expectation of 9.62 million.
US ISM Manufacturing PMI improved modestly to 46.4 in July from 46 in June. This reading came in below the market expectation of 46.8 and showed an ongoing contraction in the manufacturing sector's business activity.
The Employment component of the ISM Manufacturing PMI survey declined to 44.4 from 48.1.
The Federal Reserve Bank of Dallas' Texas Manufacturing Survey revealed that the headline Manufacturing Business Index edged higher to -20 in July from -23.2 in June.
Inflation in the US, as measured by the change in Personal Consumption Expenditures (PCE) Price Index, fell to 3% on a yearly basis in June from 3.8% in May, the US Bureau of Economic Analysis reported on Friday. This reading came in below the market expectation of 3.1%.
Core PCE Price Index, the Federal Reserve's preferred gauge of inflation, arrived at 4.1% on a yearly basis, down from 4.6% in May and below the market forecast of 4.2%. Further details of the publication revealed that Personal Income and Personal Spending increased 0.3% and 0.5% on a monthly basis, respectively.
In an interview with CBS over the weekend, Minneapolis Federal Reserve Bank President Neel Kashkari said that he was not sure whether the Fed was done raising rates. Commenting on the jobs markets, Kashkari noted that it would not surprise him to see the unemployment rate tick up slightly.

Technical analysis: US Dollar Index tests key technical level

The Relative Strength Index (RSI) indicator on the daily chart declined to 50, reflecting a lack of buyer interest.

The US Dollar Index (DXY) faces key pivot level at 102.00. A weekly close below that level could attract additional sellers and open the door for an extended slide toward 101.30 (20-day SMA) and 101.00 (psychological level, static level) could be seen as support levels.

In case DXY manages to stabilize above 102.00, 102.50 (100-day SMA, 50-day SMA) aligns as stiff resistance before 103.00 (psychological level, static level) and 103.70 (200-day SMA).

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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