Dollar slips after job growth slows in June

The US dollar (USD) fell on Friday after data showed job gains were less than expected in June, even as strong wage growth pointed to a still resilient labor market that likely ensures the Federal Reserve will resume hiking interest rates later this month.

The U.S. economy added the fewest jobs in 2-1/2 years in June, the Labor Department said in an employment report that also showed 110,000 fewer jobs were created in April and May than earlier reported.

A jump last month in the number of people working part-time for economic reasons suggested a weakening labor market, though the pace of job growth remains strong by historical norms.

The dollar index fell 0.64% at 102.410, while the euro was up 0.57% to $1.0948.

The dollar and other major currencies, with the exception of Japan’s yen, are in a tight trading range as most central banks are engaged in tightening monetary policy to fight inflation.

“The Fed is being hawkish and that prevents the dollar from depreciating too much. But the ECB is just as hawkish, if not somewhat more so,” said Thierry Wizman, Macquarie’s global FX & currencies strategist in New York.

“There’s a certain horse race going on here and that creates a certain tension that keeps the euro in that range,” he said.

Strong U.S. economic data on Thursday pushed short-dated Treasury yields to their highest since 2007, reflecting the view that the Fed is likely to raise rates by 25 basis points when it concludes a two-day policy meeting on July 26.

After the jobs data, futures pointed to an 88.8% probability that the Fed hikes in three weeks.

Earlier, the Japanese labor ministry reported regular wages posted their largest annual increase in May since early 1995, reinforcing the view that the Bank of Japan (BOJ) will have to modify its ultra-loose monetary policy sooner rather than later.

“The stronger wage negotiations are starting to feed through, which is what the BOJ wants. They’ve said very clearly that if they see evidence of more sustained, stronger wage growth that could give them more confidence that they can beat their inflation target and then look obviously to moving away from loose policy settings,” MUFG strategist Lee Hardman said.

The yen strengthened 1.31% at 142.20 per dollar.

The dollar’s decline against the yen this week marked its biggest weekly fall against the Japanese currency in two months.

Adding a tailwind to the rally in the yen was some position-squaring among speculators, who have built up sizeable bearish positions, MUFG’s Hardman said.

YEN BEARS, BEWARE

Weekly data from the U.S. regulator shows speculators hold a short position in the yen worth $9.793 billion, the largest since May 2022, having almost doubled in size in the last three months alone.

The yen has held just below the 145 level – which prompted the BOJ’s first intervention in decades last autumn – for about two weeks and authorities have made clear they are concerned about the weakness in the currency.

The Australian dollar rose 0.8% to $0.6681, but it is still battered by weak Chinese economic data and broad risk aversion. The offshore yuan fell 0.4% at 7.2257.

Currency bid prices at 10:43 a.m. (1443 GMT)