The US stock indices fully recovered at the end of June after winning back all the negativity associated with the growing expectations of an earlier change in the Fed's monetary exchange rate.
Last month, the slightly weaker data on manufacturing indicators, growth in new jobs, strong inflation, and the Fed's vague position on the need to revise the current ultra-soft monetary policy, put pressure on stock indices and contributed to the US dollar's growth in the currency market. But the latest inflation data showed a slowdown in growth, and the US regulator began to insistently declare that the current course of monetary policy will be maintained for a long period of time, citing the limited temporary impact of rising inflation and the weakness of the labor market. Against this background, the local stock market recovered, and government bond yields slightly corrected.
Today, markets are awaiting the publication of the US employment data. According to the consensus forecast, the US economy received 700,000 new jobs in the Nonfarm sector against 559,000 a month earlier. At the same time, the unemployment rate declined from 5.8% to 5.7%.
This is quite an optimistic forecast. If this is confirmed or the number of new jobs turns out to be higher, this will certainly keep the demand for shares of companies, not only in the United States.
As for the dynamics of the dollar exchange rate, everything is not so simple. The growth of the yield of the 2-year T-Note of the US Treasury supports the dollar exchange rate, as investors believe that the Fed will still be forced to start a cycle of tightening monetary policy amid the recovery of the labor market and the national economy. It doesn't matter whether it will happen at the end of this year or at the beginning of next year. This is already a fact for long-term investors, especially for buyers of government bonds.
This is the first reason that will not allow the US dollar to noticeably weaken. The second is the fact that the United States will traditionally start changing its monetary course for the last decade. It should be noted that this raises the dollar against the euro and other major currencies. This process will only intensify if the inflation rate hangs at the current values for a long time or slowly rises. This process will only accelerate the strengthening of the US dollar's position in the currency markets.
How will the US dollar react to employment data?
We believe that strong values will traditionally push the dollar to local growth against all major currencies, while the weak ones will lead to its local decline, and nothing more. In general, we should not expect its noticeable weakening.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.1845. Markets are waiting for employment data. Positive news will let the pair further decline first to the level of 1.1800, and then to 1.1700.
The GBP/USD is below the level of 1.3800. We expect the pair to further decline to the level of 1.3670.
