June NFP will come out a day early due to the July 4th holiday in the US, setting the tone for a long weekend. The data could prove pivotal, as markets increasingly expect the Fed’s next move to be a rate hike. With inflationary pressures persisting and the economy accelerating, the main obstacle to further tightening is a slowdown in the labour market.
The new Fed Chair has taken a tough stance on inflation, but the market still questions whether he will resist US President Donald Trump’s preference for lower rates. As long as inflation stays high and the labour market remains solid, Warsh may have little choice. However, if unemployment weakens again, he could delay further rate hikes. At least, that is what the market could begin to price in. That would likely weaken the greenback and allow gold to rebound above $4,000 per ounce.
Uncertainty in the Data Outlook
Economists were surprised earlier this year when US job growth suddenly accelerated, producing three consecutive months of solid reports. This happened despite ongoing pressure from the war and the expected slowdown from tariffs. The rebound followed three months of flat job creation and negative job growth during the final part of last year.
Whether this trend continues remains crucial for the monetary policy outlook and the dollar’s direction. Economists remain divided. Some believe employers pulled forward hiring sooner than expected, which could cause job growth to slow during the summer. Geopolitical turmoil may have encouraged pre-stocking and stronger demand, supporting hiring in the second quarter. Those effects could fade in the coming months. Seasonal hiring in the leisure sector and local government recruitment ahead of elections in some states also supported employment.
Some Factors Stay the Same
The World Cup likely boosted hiring in the restaurant sector and could continue supporting job growth in June. However, some economists believe the impact remains limited. Many analysts say hiring and job separations stayed relatively steady through the spring, reflecting a low-turnover labour market. That would point to a lower headline NFP figure while keeping the unemployment rate stable.
The factor that matters most to the Fed, and therefore to currency markets, is whether the labour market remains tight or begins to loosen. Rising wages could keep inflation elevated and support another rate hike. However, if wage growth slows and workers struggle more to find jobs, the Fed could choose to pause or even consider easing as its next move.
What the Market Is Looking For
The consensus expects US June Non-Farm Payrolls to slow to 110K from the previous 172K. Economists also expect the unemployment rate to remain unchanged at 4.3%. It is worth noting that consensus forecasts have underestimated the data over the past three months.
Market sentiment currently leans toward a weaker-than-expected report. As a result, a stronger-than-expected reading could trigger a bigger reaction in Forex pairs than another miss. Traders will watch closely to see whether the report changes expectations for a rate hike before the end of the year.
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