The US labor market handed traders a fresh reason to sell the dollar on Thursday. June's jobs numbers came in so much weaker than expected that the US Dollar slid to a two-week low, and the pullback flowed straight into the Swiss Franc, the Euro, the British Pound, Gold and even Bitcoin. The theme was clear all session: money was moving out of the dollar and into just about everything else.
A jobs report that missed by a mile
According to data from the US Bureau of Labor Statistics, the US economy added just 57K jobs in June, well short of the 110K the market had been counting on. The gap was wide. On top of that, May's figure was revised lower, cut to 126K from the 172K originally reported.
The surprise was that even with hiring cooling, the Unemployment Rate unexpectedly ticked down, easing to 4.2% in June from 4.3% in May. Average Hourly Earnings rose 0.3% MoM and 3.5% YoY in June, landing exactly in line with market expectations.
The dollar slides to a two-week low
As the numbers hit, the US Dollar deepened its intraday losses and dropped to a two-week low. The pressure had actually started earlier, when the Japanese Yen staged a sharp rebound. Speculation was running high that Japanese authorities may have stepped into the foreign exchange market, and that is what set off the greenback's early weakness.
The US Dollar Index (DXY), which measures the currency against a basket of six major peers, was trading around 100.70, down roughly 0.70% on the day.
Swiss inflation cools, tying the SNB's hands
Earlier in the day, data from the Swiss Federal Statistical Office showed Swiss inflation slowing in June for the first time in eight months. The Consumer Price Index (CPI) was flat at 0.0% MoM, below the 0.1% forecast and down from 0.2% in May.
On an annual basis, CPI eased to 0.5%, matching market expectations and coming in below the 0.6% rise recorded in May.
Inflation that stays this subdued strengthens the view that the Swiss National Bank (SNB) will keep its policy rate parked at 0% for the foreseeable future, since price growth sits comfortably within the central bank's 0% to 2% stability range.
Why Nonfarm Payrolls matter so much
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics' monthly jobs report. The component specifically measures the change in the number of people employed in the US during the previous month, leaving out the farming industry.
The figure can shape the Federal Reserve's decisions because it shows how well the central bank is meeting its mandate of full employment and 2% inflation. A relatively high NFP means more people are working, earning more and therefore probably spending more. A relatively low result, on the other hand, can signal that people are struggling to find work. The Fed will typically raise interest rates to fight high inflation caused by low unemployment, and cut them to breathe life into a stagnant labor market.
How the numbers ripple through the dollar and gold
Nonfarm Payrolls generally move in the same direction as the US Dollar. When the figures beat expectations, the dollar tends to rally, and when they miss, the opposite tends to happen. NFP influences the dollar through its impact on inflation, monetary policy expectations and interest rates. A higher NFP usually points to a tighter Fed, which supports the currency.
Gold, by contrast, generally moves the other way. A higher-than-expected payrolls figure tends to weigh on the Gold price, and a weaker one tends to lift it. Because a strong NFP lifts the dollar, and Gold, like most major commodities, is priced in dollars, a stronger dollar means it takes fewer dollars to buy an ounce of Gold. Higher interest rates, which strong payrolls often bring, also make Gold less appealing as an investment compared with holding cash that at least earns interest.
The headline number is only part of the story
Nonfarm Payrolls are just one piece of a larger jobs report, and the other components can sometimes overshadow them. There are times when NFP beats forecasts but Average Weekly Earnings comes in soft, and the market brushes aside the potentially inflationary headline while reading the drop in earnings as deflationary. The Participation Rate and Average Weekly Hours can also sway the market's reaction, but only in rare episodes such as the 'Great Resignation' or the Global Financial Crisis.
How other markets are trading
The British Pound was 0.5% higher, near 1.3340 against the US Dollar during Thursday's European session. Ahead of the June US Nonfarm Payrolls release, due at 12:30 GMT, the dollar was underperforming its peers and the GBP/USD pair was showing strength.
The dollar lost ground against the Euro too. EUR/USD pushed past the 1.1450 mark to reach a fresh multi-day peak on Thursday. Amid a sharp correction in the dollar, the pair left behind two straight days of pullbacks as investors weighed the latest US NFP data.
Gold held on to its bullish momentum on Thursday, climbing above $4,100 per troy ounce. The precious metal's strong rebound rode on the dollar's retreat and higher US Treasury yields following the softer-than-expected NFP report.
The cryptocurrency market rose broadly on Thursday, reflecting improving risk sentiment after a long stretch of selling pressure. Bitcoin was back above $60,000 after testing support at $58,000 earlier in the week.
All eyes still on the Fed
Financial markets came to Sintra looking for clues about the Federal Reserve's next move. They largely left with confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find.
