After being weaker ahead of the data release, the US Dollar posted a recovery rally on Friday afternoon as the latest Non-Farm Payrolls report showed that the US economy added more jobs than expected in August. The latest monthly reading jumped by 201k in August, beating expectations of 191k.
While this data alone buoyed the market, further encouragement for USD bulls came by way of wage growth as average hourly earnings rose to 2.9% in August, beating expectations of 2.7% and hitting its highest level since April 2009, while the unemployment rate held around near a generational low at 3.9%.
Some Weakness in The Data
However, the news wasn’t all good as the two prior monthly readings were both revised lower by a combined 50k, from 157k to 147k in July and from 248k to 208k in June. Furthermore, both the labor force participation rate (62.7%) and the employment-population ratio (60.3%) declined by 0.2% in August.
Headline Figures Keep Fed On Track
Despite the softness in some areas, the headline figures are a big positive for the US Dollar and keep the Fed firmly on course for two further rate hikes this year: one in September and one in December. Recent US data has shown a significant uptick with 2Q GDP posting a big upside surprise at 4.2% and the ISM Manufacturing Index hitting its highest level since 2004. Alongside this, we have seen New order jumping to 65.1 from 60.2 with production increasing to 63.3 from 58.5 prior, both well above the break-even level of 50. While trade concerns are still present, for now, it seems that the main story is the strong momentum in the US economy and a Fed which is committed to continuing its path of gradual rate hikes.
Fed Plays Down Trade War Worries
Indeed, in its latest monetary policy report the Fed judged that although Trump’s trade war poses a risk to the economy, for now, US business conditions have been unaffected and with data continuing to support this view, there is little to suggest that the Fed will deviate from the two further planned rate hikes this year.
With the Index fighting to find support at the retest of the broken 95.10 level, short-term focus is on further upside. If USD can find its feet, attention will turn to a test of the next key resistance level at the 97.64 region. Above there, the main level is the 100.67 level with the bearish channel top coming in around the same level also.