At 20:30 on July 8, Beijing time, the United States will release key data such as non-farm payrolls and wage growth in June. On July 7, market analyst Yohay Elam predicted four possible scenarios, believing that the US dollar will strengthen in three scenarios, and only in one scenario can the US dollar fall, and give corresponding reasons.
① Both non-agricultural and wage growth are stronger than expected: positive for the dollar
This is the most directly positive result for the dollar. If the U.S. is still hiring and wages are rising, that means the Fed must do more to cool the economy and prices. This would solidify expectations for a 75bps rate hike in July and raise expectations for future rate hikes, thus bullish for the dollar.
② Weak non-farm growth, wage growth: positive for the dollar
This situation means fewer low-wage jobs, but the market will ignore the cause and focus on inflation in the United States, which is also the basis for the Fed to raise interest rates. Pain from a slowing U.S. labor market will be ignored as the market focuses on suppressing rising prices. The Fed will raise interest rates, which will lead to a stronger dollar.
③Non-agricultural and salary data are pessimistic: safe-haven funds pour into the US dollar, which is good for the US dollar
If U.S. employment falls and wage growth slows, the Fed's rate-hike expectations will be reduced. However, "as soon as the United States sneezes, the whole world catches a cold." In other words, if the United States, as the world's largest economy, cannot lead the world's economic growth, other economies will suffer even more. In this case, it is better to use the U.S. dollar as a safe haven. Safe-haven inflows will boost the dollar.
④ Strong job growth, slow wage growth: bearish for the dollar
The return of workers in the leisure and hospitality industries in the era of the pandemic has triggered a decline in wage increases. For the market, this would be a perfect scenario for a strong economic expansion and lower price pressures. That's a positive for the world and a relief for the Fed -- a sign that prices will come down. It was also the only scenario that weighed on the dollar.
Market analyst Yohay Elam concluded by noting that as uncertainty over Fed rate hikes rises and money markets appear to be more sensitive than ever to every economic news, June’s nonfarm payrolls data could spark more volatility than usual .