Dollar gives up post-US jobs data gains
Yesterday’s employment report in the US was stronger than expected, triggering a paring back of Fed rate cut expectations and an increase in US bond yields. The dollar firmed in response to the data, but its gains were modest and short-lived. It is trading at around $1.1780 and $1.3670 against the euro and sterling respectively this morning, well off yesterday’s best levels of about $1.1720 and $1.3590. The pound has also recovered some more ground against the euro, following Wednesday’s fall, trading just above £0.86. While US bond and equity markets are closed for Independence Day, Donald Trump will sign his One Big Beautiful Bill (OBBB) into law later today – to much fanfare one would imagine – after it passed in the House yesterday. He has also said he will send out “10 to 12” letters to trading partners today, with more to follow over the coming days, informing them of the tariffs they will “start paying from August 1st,” adding that the latter will “range in value from maybe 60-or 70% tariffs to 10 and 20% tariffs”. Watch this space!
With the market scaling back Fed rate cut expectations post the jobs data, 2-year bonds led the increase in US yields, rising by the best part of 10bps, while 10-year yields rose by about 6bps. Elsewhere, UK yields reversed some more of Wednesday’s sharp increase, with 10- and 30-year yields falling by 7-8bps, while German yields were also lower on the day, by around 4-5bps. The resilience of the US labour market seemed to reassure equity markets, as US stocks advanced by around 1% (to new record highs) and European indices added circa 0.5%. The latter have opened in the red this morning though, probably in reaction to Trump’s latest tariffs ‘missive’.
The US economy added 147k jobs in June, ahead of the forecast gain of 106k, though private sector employment rose by a more modest 74k, less than the 100k increase expected. The unemployment rate dipped to 4.1% from 4.2% in May (it was forecast to rise to 4.3%), but this was largely due to a decline in the labour force participation rate which fell for a second consecutive month in June, while wage growth eased last month with the annual increase in average hourly earnings dipping to 3.7% from a downward revised 3.8% in May. Following the data, the market has priced out whatever small chance it saw of a Fed rate cut this month and now expects circa 50bps of easing by year-end, about 15bps less than priced in prior to yesterday.
Looking to the day ahead, market activity is likely to be subdued with the US on holiday. It is also very quiet in terms of economic data with Euro area producer prices and the construction PMI in the UK the only releases of any note.