At 8:30 am Eastern Time today, the Bureau of Labor Statistics reported staggering new US labor market data, revealing a far hotter economy than traders and investors expected. They reported on three different economic indicators, each of which signal roaring US inflation and the likelihood of an even stronger US Dollar in the foreign exchange market. Let’s analyze each of these as we discuss the shocking news for USD.
1) Average Hourly Earnings (Month-over-Month)
Average hourly earnings, i.e., the cost of businesses paying their employees for labor, were expected to rise by 0.3% month-over-month in the US. Instead, they rose by 0.5%, nearly double that expected. More money in the hands of workers creates more opportunities for consumer spending, which indirectly causes higher prices for goods and services as well, contributing to inflation, which is bullish for USD.
2) Non-Farm Employment Change
Non-farm employment change, or non-farm payrolls (NFP), is the net change in hired people across all industries besides farming. Reported monthly, 250,000 net new hires were forecast to be added to the US economy; instead, the real number was 528,000, more than double that expected. Over half a million new workers will mean far more consumer spending, and also confirms that companies currently have enough revenue to afford to hire them. This number is also significantly greater than last month’s 398,000 jobs added, indicating rampant overheating unthwarted by the Fed, which is extremely bullish for USD.
3) New Unemployment Rate
The new unemployment rate in the US was anticipated to be unchanged from last month’s 3.6%. Rather, the unemployment rate surprisingly declined, settling at 3.5%, a pre-pandemic level. This is shocking data amid a technical recession and rapid, substantial interest rate hikes, and signals that recent high inflation rates are nowhere near dealt with. This labor market is holistically hotter than expected and will likely translate into more buying pressure for USD into the near future, benefitting USD bulls.
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For those who are interested in exploring which currency pairs present the most promising trade opportunities, consider investing in the EdgeFinder, a helpful A1 Trading tool for supplemental analysis. Fellow analyst Frank Cabibi also wrote an illuminating article on several optimal major pair trade setups for USD bulls that you can read here.
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