July data from the US labor market seem to help the dollar. They may justify the Federal Reserve's discussion on reducing the asset purchase program or raising interest rates.
The EUR/USD pair seems to have fallen below 1.1780, and just before the US data was released it was above 1.1800. The Polish zloty also seems to be losing ground, with PLN 3.87 per USD. For several days the exchange rate stabilized in the region of 3.83 PLN, and now it may be heading for the peaks from the second half of July, i.e. above 3.90 PLN.
A stronger dollar and chances for monetary policy tightening in the USA may push the price of gold. It fell below USD 1800 today and is now close to USD 1775 per ounce, which is the lowest level since the end of June. The yield on US 10-year bonds seems to have risen to 1.28 percent from the 1.17 percent level seen just yesterday.
Nearly one million new jobs
The U.S. Labor Department reported that the U.S. economy added 943,000 jobs in July, the most in eleven months and well above the market consensus of 870,000. The rapid pace of COVID-19 vaccination appears to have allowed the U.S. to continue its efforts to reopen the economy and prompted businesses to hire more workers in leisure and hospitality, local government education, and professional and business services.
The finish line of the labor market recovery is already visible
The unemployment rate fell 0.5 percentage points to 5.4 percent, the lowest level since March 2020 and below market expectations of 5.7 percent. Thus, the number of unemployed fell by 782,000, to 8.7 million people. These rates are well below the end-of-recession peaks in February-April 2020 However, they remain well above pre-pandemic levels (3.5 percent and 5.7 million, respectively) in February 2020.
Maintaining this pace of U.S. employment could mean that by early next summer, the number of people in the labor force could be the same as it was in early 2020, which was before the outbreak. This seems to be one of the conditions under which the Federal Reserve may decide to raise interest rates.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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