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Great week for Fed on strong US jobs data

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By Craig Erlam  

If you’re a Federal Reserve official, you’ll find it hard not to be very pleased with the way this week’s gone from a labour market data perspective.

The JOLTS release at the start of the week was extremely encouraging as it continued a clear trend that brought the number of vacancies back to levels not seen in two years and not far from the pre-pandemic norm. Even without Friday’s NFP, that will have come as a huge relief for the Fed.

When you consider the non-farm payrolls report on top of that, the week couldn’t have gone much better. The headline NFP may have been a little stronger than expected, but it’s still below 200,000 and the beat was more than offset by last month’s revision.

Then there’s average hourly earnings which fell back to 0.2%, a level far more consistent with the Fed’s goal if it can be repeated and again, below market expectations. The cherry on the cake is the participation beat and jump in unemployment, both of which point to more slack appearing in the labour market.

To be clear, the Fed won’t get carried away with the NFP report. It’s just one that needs to be repeated on a number of occasions, but there’s plenty of cause for optimism in there.

If there was any doubt that the Fed will pause in September, Friday’s report surely puts an end to that debate.

Gold pares gains

Despite all of this, the reaction to the report was arguably relatively mild.

The dollar was lower but pared much of the earlier declines, as have US yields. Gold initially broke above $1,950 – a level it’s struggled around in recent days – but ended the week hovering a little below.

We should always wait for the dust to settle on this before making a judgment. But on the face of it, this week’s labour market figures don’t appear to have done gold any harm after what has been a rough few months for the yellow metal.

Oil buoyed to near 2023 highs

Crude oil prices have seemingly responded positively to the labour market figures, perhaps as they signal interest rates may not rise any further and even fall sooner which is better for the economic prospects of the economy over the medium term.

They’d already been on a good run though and Brent is now trading around its highest level this year, with no shortage of momentum.

 

Craig Erlam is Senior Market Analyst, UK & EMEA at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.