AuthorAuthor: Chris CammackPublished: July 6, 2023
EditorEditor: Alison HeyerdahlUpdated: July 13, 2023

Last Updated On July 13, 2023

Chris Cammack

This afternoon, Thursday, 6th July, the ISM Service PMI data came in much better than expected, alongside an initial jobless claims readout showing the US jobs market is still healthy. The ADP National Employment Report also showed that the private sector added 497k jobs in June, double market expectations. The USD, as measured by the DXY Index, responded immediately, pushing higher against almost all major and emerging currencies.

DXY July 6

The strong economic data followed the release of June’s FOMC minutes on Wednesday. The minutes showed unanimous concern among the Committee about the stubbornness of high inflation in the US and a willingness to raise rates again this month. A statement from the Fed read: “Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.”

In comments on Thursday afternoon, the Federal Reserve Bank of Dallas President Lorie Logan reiterated this point, saying, “I remain very concerned about whether inflation will return to target in a sustainable and timely way, the continuing outlook for above-target inflation and a stronger-than-expected labor market calls for more-restrictive monetary policy.”

There is growing unease that the unprecedented rise in global interest rates has yet to tame inflation, with economists and analysts looking deeper into the numbers to understand why inflation has remained so sticky and even offering alternative solutions.

In the meantime, the Federal Reserve, and other central banks, will continue using the tools at their disposal. This means continued interest rate rises and a week-by-week focus on the latest economic data as policymakers attempt to tame inflation without driving their respective economies into recession.

All eyes will now turn to the US Non-Farm Payroll (NFP) released on Friday, 7th July, with initial market expectations for a 225k print following last month’s 339k, now looking to have undershot the prospects for continued job growth.

With a July interest rate rise now all but locked in for the US, we can expect a continued upside bias for the USD vs other major currencies. The EUR looks especially vulnerable as Germany enters a technical recession and wider eurozone economic data shows a severe slowdown.

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