US Dollar Index (DXY) stalls above 99.00 as JOLTS jobs optimism fades
- The US Dollar loses momentum as Eurozone manufacturing data beats expectations.
- The Greenback had pared some losses following strong job openings on Tuesday.
- US ADP figures are expected to confirm a tight labour market.
The US Dollar Index (DXY) nudges lower on Wednesday, following a sharp rebound on Tuesday. The Greenback has lost momentum as it approaches the 100.00 psychological area, as the impulse from the US JOLTS Job Openings positive surprise waned.
Investors are growing increasingly cautious about the US Dollar, awaiting the release of the US ADP Employment reading and May’s ISM Services PMI figures. Beyond that, Trump’s lack of advances deals with trading partners, the day when they are supposed to submit their proposals, is keeping traders on edge.
Apart from that, Eurozone Services PMI has been revised up to a 49.7 reading in May, from the previously estimated 48.8, which has given a moderate boost to the Euro, increasing negative pressure on the US Dollar.
US ADP is expected to confirm a healthy labour market
On Tuesday, US JOTS data boosted market sentiment after April’s Job Openings posted an unexpected advance to 7.39 million. Market experts had forecasted a slight decline to 7.1 million following an upwardly revised 7.2 million in March.
The positive JOLTS reading offset the impact of the 3.7% decline in Factory Orders, which exceeds the 3% decline expected by the market. These figures come after a larger-than-expected contraction in Manufacturing activity and highlight the negative impact of tariffs on factory activity.
Later today, the US ADP Employment report is expected to show that private payrolls increased by 115K in May, following a 62K increase in April. Somewhat later, the US ISM Services PMI is expected to reflect a moderate expansion of business activity.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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