"Mini Non-Farm Payrolls" Good news for rate cuts! The US dollar index briefly fell below 104
"Mini Non-Farm Payrolls" Good news for rate cuts! The US dollar index briefly fell below 104
At 20:15 Beijing time, the US ADP employment report for July showed an increase of 122,000 jobs, lower than the expected 150,000 jobs, marking the smallest increase since January 2024. The previous value was revised from 150,000 to 155,000.
The report indicated a slowdown in wage growth in July. Specifically, the year-on-year wage growth for staying employees in July slowed to 4.8%, the slowest growth rate in three years; while the salary increase for job switchers dropped significantly from 7.7% to 7.2%.
Analysts mentioned that the lower-than-expected ADP data aligns with signs of weakening labor demand, as the unemployment rate has been rising in recent months along with an increase in the number of people applying for unemployment benefits.
According to CME's "FedWatch Tool," after the release of the ADP data, the probability of the Fed staying put tonight is 96.9%, with a 3.1% chance of a 25 basis point rate cut. The probability of the Fed keeping rates unchanged until September is 0%, with a cumulative 87.7% chance of a 25 basis point cut, a 12.0% chance of a cumulative 50 basis point cut, and a 0.3% chance of a cumulative 75 basis point cut.
Following the data release, the USD/JPY pair fell below the 150 level, marking the first time since March this year. The US Dollar Index briefly dropped below 104, the first time since July 18.
Nela Richardson, Chief Economist at ADP, mentioned that with the slowdown in wage growth, the labor market is cooperating with the Fed's efforts to slow down economic growth. If inflation picks up, it won't be due to the labor market.
These figures suggest that the labor demand in the world's largest economy may slow down, strengthening expectations of a Fed rate cut later this year. In theory, a slowdown in the job market could alleviate some wage pressure, thereby easing inflationary pressures.
Financial website Forexlive stated that the overall weakness in the job market is moderate, but it should give the Fed more confidence to signal policy normalization.
Subsequently, the US Labor Department's second-quarter Employment Cost Index showed a greater-than-expected cooling in broad labor costs growth, supporting the trend of gradually easing inflation pressures. The index recorded a 0.9% quarterly increase in the second quarter, marking the largest rise in a year since early 2024.
Michael Pearce, Chief US Economist at PGIM, mentioned that due to a slowdown in cyclical hiring in recent months, the US focus has shifted from inflation to labor market easing, allowing the Fed to start cutting rates in September. It is expected that the Fed will announce a rate cut for September at tonight's meeting. Another rate cut may occur at the December meeting, and the possibility of a rate cut in November should not be overlooked It is expected that by the end of 2025, the Federal Reserve will cut interest rates by approximately 150 basis points