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4 July 2024 | FXGT.com

US Dollar Under Pressure as Job Data and ISM Report Signal Economic Weakness

  • Jobs Data Points to Easing Labor Market: Both the ADP Employment report and weekly jobless claims data indicate easing labour market conditions. Private employers hired 150K individuals in June, below the expected 160K. The four-week moving average of initial jobless claims rose to 238.5K, suggesting a potential negative shift in employment numbers ahead of the Friday’s non-farm payrolls report.
  • Decline in ISM Services PMI: The ISM Services PMI contracted to 48.8 in June, down from 53.8 in May, and is the lowest reading since May 2020. This points to a contraction in the services sector, indicating weakened economic activity.
  • Highlights from the ISM Report: Key points from the ISM report include the headline number reaching a new cycle low and the New Orders Index falling into contraction for the first time since 2022. Despite this, one poor print does not establish a trend, and the ISM Services PMI has shown volatility, dropping to 49.4 in April before rebounding to 53.8 in May. However, the weak data is alarming and strengthens the case for policy easing and further pressures the US dollar.
  • Insights from the FOMC Minutes: The release of the FOMC minutes revealed that several Fed officials expressed concerns about slowing economic growth and potential risks to the labour market. Investors are increasingly betting on a dovish stance from the Fed, with many anticipating two rate cuts by the end of the year. The minutes also highlighted worries about persistent inflation, but the overall tone suggested a readiness to ease policy if necessary.
  • Impact on the US Dollar: Weak labour market signals combined with disappointing ISM data have weakened the dollar, leading to its second consecutive day of weakness and reaching a two-week low. The latest data has increased the likelihood of a rate cut, with the FedWatch tool now showing a 72% chance of a rate cut in September, up from 59% a month ago.
  • Impact on US Stocks: U.S. stock indexes rose in a holiday-shortened trading session on Wednesday, boosted by the prospects of lower interest rates. The S&P 500 and Nasdaq both posted gains as investors anticipated that easing monetary policy would support economic growth. U.S. markets are closed today for Independence Day.
  • Upcoming Economic Data: Attention is now focused on the upcoming non-farm payrolls report, which is expected to show a rise of 190,000 jobs in June. This report is critical for determining the direction of the dollar and the likelihood of future rate cuts. 
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