Weak US jobs data disappoints markets and reins in dollar

1st August 2014

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Weaker than expected US jobs data put the reins on the dollar but provided some confidence that interest rates would remain low for a while longer.

While figures from the US Bureau of Labor Statistics showed 209,000 jobs were added to the US economy in July compared with 298,000 in June, and the unemployment rate ticked up to 6.2%.

The latest figures mark the sixth month in a row that employment has expanded by more than 200,000 although July job growth had been predicted to be around 233,000.

However, the Federal Reserve warned that ‘significant’ slack remained in the economy and average hourly earnings – which is often used as a measure of this slack – increased just one cent.

Improving average hourly earnings would be a potential indicator of interest rate rises but the paltry increase denotes rates will stay low for the time being.

The news saw the dollar pause just below a 10-month high, where it had been hovering just before the release of the data. The dollar index was up marginally near 81.50 just within a 10-month peak of 81.573.

Tony Wilson, head of strategy at foreign exchange specialists FEXCO, said July’s slow down in employment would mean the greenback would finish the week ‘with a whimper’.

‘After last month’s home run, this can’t but feel like a strike – and the underwhelming jobs number immediately checked the dollar’s bull run,’ he said. ‘While no-one expected to see anything like the surge of job creation recorded in June, July’s weaker number – and the rise in the unemployment rate – have hit both equity and currency markets like a bucket of cold water.

‘It says much about the strength of the US economy that the creation of more than 200,000 jobs, for the sixth month in a row, is viewed as tantamount to failure…There’s every chance the greenback will end what has been a strong week with a whimper rather than a bang.’

In the UK, jitters about the data pushed Britain’s top share index to a three-week low early on Friday showing concerns that it could indicate an interest rate hike.

The FTSE 100 was down 1% this morning at 6663, its lowest since early July, and following the release of the data failed to gain much more ground – hovering at 6677 in early afternoon.

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