2 fundamental reasons to buy the US dollar after the latest NFP Report
- US economy is reslient, as suggested by Friday's NFP Report
- US dollar remains bid
- Fed on track to deliver another 75bp rate hike
The trading community waited for the most important economic release of the month to be out last Friday – the NFP Report in the US. Unfortunately, the trading day was shadowed by the news that the former Japanese Prime Minister, Shinzo Abe, was assassinated during a political campaign speech.
Abe was a visionary Japanese leader. Abenomics will remain known as the three arrows designed to lift Japan from deflationary times to times where the economy grows sustainably and the society, as a whole, benefits.
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But the news did not impact Western financial markets a bit. Just the opposite – it went down as regular news in a world facing war in Europe, higher energy prices, rising inflation, or gun-control problems in the United States, to name just a few of today’s challenges.
So this was the context where the NFP Report for June was released last Friday. For all the doom and gloom, the report shows a resilient US economy and gives the Fed the green light to raise the funds rate by another 75bp later this month.
The US economy added 372k new jobs in June, and the Unemployment Rate remained steady at 3.6%. Health care, leisure and hospitality, and professional and business services, led the way.
US economy is resilient
Financial markets have already started to price in a recession in the US. Recent polls suggest that American households and businesses expect a recession, and many market participants believe one has already started.
But last Friday’s NFP report suggests the opposite.
Not only that the US economy keeps adding jobs at a staggering pace, but the Unemployment Rate remains dipped to levels not seen since before the COVID-19 pandemic.
Once again, despite the global geopolitical and economic adversities, the US economy is resilient and performs much better than feared. Hence, from a fundamental perspective, this is bullish for the US dollar.
A strong jobs report gives the Fed a green light for a 75bp rate hike
The financial markets did not have a strong reaction to Friday’s data. It was, perhaps, the effect of slow summer trading conditions as everyone thinks of the summer holidays ahead.
But one thing stands out from the crowd after yesterday’s NFP Report. The solid employment data is giving the Fed the green light for another 75bp rate hike in July, following a similar move in June.
Hence, the interest rate differential favors the US dollar against its peers, so the buying looks poised to continue.