The greenback has failed to capitalize from a stronger than expected US payrolls rise. The lacklustre reaction gave way to a strong bounce of bond prices – the yield on the 10–year US government bonds plummeted below 1.30 pct last week and posted multi-month lows.
The US economy created 850 thousand jobs in June, which is the highest number since August. Nonetheless, some details of the jobs report remained worrisome. Firstly, hardly any increase in the labour supply was recorded. Secondly, the unemployment rate rose and surprised to the upside. The reading failed to spur a fresh round of dollar buying. Instead, market participants presented a knee-jerk reaction to a softer round of economic data from China, India (PMIs), Germany (ZEW index, new factory orders) and the United States (Services ISM).
US dollar briefly regained traction
The sharp jump in the prices of Treasury bonds caused a strong reshuffle in currency trading and on equity markets. The shock quickly passed: the dollar appreciated significantly on the wave of reduction of reflation trade positions. The US currency reached the maximum of its strength against the main currencies on Tuesday. Since the local peak, the dollar index, which is strong mainly against the euro and five other currencies of developed economies, slid almost 1%. The sentiment on Wall Street was also strengthened - the S&P 500 index ended the week with another historical record.
Important week for dollar, data from China crucial for sentiment
The minutes of the June FOMC meeting confirmed that policymakers are getting closer to winding down the crisis asset purchases (still running at the pace of at least 120 billion USD per month). The announcement is expected later this year, but we rule out July. The tone of the minutes may suggest that September may also be too early for such a decision. The extraordinary pandemic disorder still persists, and the labour market still has a long way to go before employment is fully restored. However, this week will provide some valuable clues and may also unravel the pessimism about the prospects for the global economy, which suddenly became an important part of the market narrative and translated into a huge jump in government bond prices.
First and foremost, we will see the release of headline inflation (Tuesday) and retail sales data. Other highlights will be Jerome Powell's speeches in Congress, where he will give his semi-annual report on Wednesday and Thursday. Important for the market sentiment may be data on the pace of economic growth in China, about which investors are becoming increasingly anxious.