U.S. labour market shows no signs of tightening yet, adds little pressure on the Fed to tighten policy

Friday’s US Non-Farm Payrolls report published by the Bureau of Labor Statistics (BLS) was mixed, providing something for bulls and bears alike. The headline number was better than expected but the unemployment rate rose from the earlier month. Data was far from perfect, but it certainly was reassuring for bulls on the US economy.

The BLS report showed US economy added 222,000 non-farm jobs in June beating consensus for 178,000. The May figure has been revised up from 138,000 to 152,000. Revisions to the previous two months’ of payrolls added 47k positions. The improvement was widespread with gains seen in the private sector employment and government payrolls. Private payrolls rose 187k, while government hiring rose 35k.

On the flip side, the unemployment rate increased to 4.4 percent from 4.3 percent in May. The labor participation rate was up 0.1 percentage points to 62.8 percent, consistent with its average over the last 12 months. However, wages continued to disappoint, with the average hourly earnings up just 0.2 percent, improving less than expected. The US economy continues to create new jobs without accompanying wage increases, which suggests that there's no sign of a tightening labor market yet. The NFP report does little to increase the pressure on the Federal Reserve to tighten policy.

"Overall, we think the NFP numbers seem to imply that the Fed may remain on track this year but without inciting additional bullishness. However, any carryover of USD resilience from last Friday may continue to be selective, and at this juncture, may primarily continue to manifest more effectively via USD-JPY. Meanwhile, the balance of evolving global central bank rhetoric may continue to remain in play and potentially still impinge on the USD," said OCBC Bank in a report.

Federal Reserve (Fed) Chair Janet Yellen’s semi-annual testimony is due on Wednesday and Thursday, where she is expected to reiterate the possibility of another Fed rate hike before the end of the year and could eventually provide a hint regarding the Fed’s balance sheet normalisation plans. The lack of further details should keep the US dollar loose.

At 1600 GMT on Monday, USD/JPY was trading at 114.18, slightly below fresh 2-month highs of 114.30 hit earlier on the day. Upside has broken consolidation phase after break of Symmetric Triangle pattern, we see scope for test of 61.8% Fib retrace of 118.662 to 108.130 fall at 114.63. The pair finds strong support at 111.78 (100-DMA), and only break below could see reversal of trend.

At the time of writing FxWirePro's Hourly Strength Index of US Dollar was neutral at 34.7225. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex.

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