The dollar hit a fresh multi-year low earlier today as it struggles on several (fiscal, monetary, and Fed independence) fronts. It’s a holiday shortened week in the US which means nonfarm payrolls and other monthly labour market data for the month of June will be released on Thursday. Expectations are for a further gradual slowdown in hiring, with backward revisions worth watching given the recent trend for initial estimates to be lowered afterwards. Markets are watching this data ahead of the July FOMC meeting and to see if it gives any succour to the downtrodden dollar. The majority of Fed policymakers appear to be in no rush to cut rates again. But some officials have stated to voice they believe a cut in a few weeks may be warranted. Similarly, pressure from President Trump to act will be intense, especially with a soft report.
The US economy is expected to add 113k nonfarm payrolls in June, below the May print of 139k. However, 95k of May’s gain was netted out by revisions to the prior two months, leaving a net change of just 44k. The three-month headline average is 135k, the 6-month average is 157k, and the 12-month average is 144k. The unemployment rate is expected to tick one-tenth higher to 4.3%. That would be primarily due to a drop in the labour force participation rate, which fell to the equal-lowest level in three years in May. The Fed’s most recent projection in June forecast a 4.5% level by the end of this year. The rate of average hourly earnings is expected to cool to +0.3% m/m from +0.4% in May, while average workweek hours are seen unchanged at 34.3hrs.
Employment indicators and other factors
Increasingly the US labour market is looking as though it is stalling out and susceptible to downside risks. Over the remainder of 2025, weak growth in employment is expected to see the unemployment rate trend up. That’s because lead indicators like soft business surveys and job vacancy numbers suggest that July through to September is a crucial period that could see much weaker data. Weekly initial jobless claims figures have remained within their range of recent years, but continuing claims are moving up, also pointing to a cooler labour market.
On the flip side, payrolls in May were artificially depressed by bad weather which means the rebound from that low base effect could be strong. Another consideration is that seasonal adjustment factors for months of June have tended to overstate payrolls in recent years. More broadly, there has been a gradual deceleration in US household consumption in general, reflecting a marked slowdown in household real personal disposable income growth. This is being made worse by excess savings largely now being eroded, which means this ‘cushion’ has gone largely flat.
Market reaction
At his post-FOMC press conference a few weeks ago, Fed Chair Powell said the labour market remains solid, acknowledging only a “very, very slow continued cooling” that he does not view as troubling. Powell cited strong job creation and labour force participation as signs of continued resilience. This sentiment has been echoed by other officials too, even though two Trump appointees have recently said a July rate cut is in play. A weak payrolls report would probably be blamed on the uncertainty his administration’s policies are causing. But it’s very likely the Fed will require more evidence than one month’s payrolls report and lots more evidence on the inflation readings to alter their current ‘wait-and-see’ stance.
Risks are skewed to a bigger move to the downside in the dollar if we get a weak report, as markets will simply await more evidence on any knee-jerk move higher from more solid data. That said, the roughly 20% chance of July 25bps rate cut could get priced out in that instance. Major long-term resistance sits at 99.57 on the Dollar Index. Stocks seem like they’re on a one-way trip higher, whatever the outcome.