Janet Yellen speaks today in Philadelphia

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Image via Peter Miller / Flickr

Friday’s jobs report sent the dollar weaker as the report saw investors scaling back the rate hike expectations in June. The dollar reversed its gains last week after rising steadily for three consecutive weeks, fueled by hawkish rhetoric from Fed officials with many voting members in favor of a rate hike if the economy continued to improve. US stock indexes fell sharply after the labor department’s data showed that US nonfarm payrolls rose by 38k in May, marking one of the weakest monthly payroll gains since September of 2010. With fewer people looking for work, the unemployment rate fell from 4.90% to 4.70%. The 38k increase came against expectations of a 160k average job growth most had expected to see.

Besides the weak performance in May, April and March’s payroll data was also revised lower by a combined 59k. After the released, the Fed fund futures watch by CME Futures showed the odds for a June rate hike slumping to only 4% from 21% previously, before the jobs report. Even July’s rate hike odds fell, from 58% to 34%.

CME Futures – Fed Funds Futures Watch (Implied Probability – June 15th)
CME Futures – Fed Funds Futures Watch (Implied Probability – June 15th)

Charlie Smith, Chief investment officer at Fort Pitt Capital Group, said “We see these will raise, won’t raise cycles getting shorter and shorter. The more important topic is can we normalize interest rates in the next two years and not wreck the economy? And the answer is yes.” Echoing similar sentiments Joe Manimbo, senior market analyst at the Western Union says, “This is certainly a dollar negative report Together with the other weak data we have been seeing lately, it casts doubt on a summer rate increase.”

Today, Federal Reserve Chair Janet Yellen will be speaking at an event in Philadelphia, giving the governor a chance to reflect on the recent jobs report. Over the weekend, FOMC voting member, Loretta Mester, told reporters in Sweden that “I still believe that in order to achieve our monetary policy goals, a gradual upward pace of the funds rate is appropriate. The timing of actually when the rate hikes would occur and the slope of that gradual path is data-dependent.” Mester’s comments came after Friday’s jobs report. She said, “You can’t read too much into one number, but it is certainly part of the data that will be taken into account as we go into the June FOMC meeting and for the rest of the year.”

The week ahead is light regarding economic data releases from the US, barring Monday’s speech from Janet Yellen followed by Eric Rosengren, another FOMC voting member. The US dollar could see some consolidation in the process as the week after will see a busy calendar including US retail sales, PPI and inflation data and the FOMC meeting on June 15th.

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