Will the May 2023 US Employment Situation Change the Dollar’s Course This Week?
Here are some data points to know if you plan to trade the event:
Focus on the event:
Monthly US Employment Situation summary from the US government for May 2023
When will it be released:
June 2, Friday: 12:30 pm GMT, 1:30 pm London time, 8:30 am New York, 9:30 pm Tokyo
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
- US Nonfarm Payroll Change Monthly: 193K vs. 253K Previously
- Average US hourly earnings per month: +0.3% mom-in-expected vs. 0.5% mom-to-be
- US Unemployment Rate: 3.5% expected vs. 3.4% previously
Another slight slowdown in employment for Uncle Sam is expected for May, with number experts forecasting a smaller increase of 193K compared to April’s gain of 253K.
This is likely to translate into a rise in the unemployment rate from 3.4% to 3.5%, which should highlight signs of a slowdown in the US labor market.
Wage growth is expected to be less subdued, with average hourly earnings set to show a monthly increase of 0.3% versus the previous increase of 0.5%.
Now this wage growth data point may be a major driver of the dollar’s direction since it is seen as a factor for inflation expectations, as well as expectations for workers returning to the workforce or changing jobs.
Leading job indicators such as the S&P Global PMI readings pointed to strong employment growth for the month, as manufacturing and services firms reported rising workforce numbers employed during a backlog of work from previous months.
Relevant US data since the last US Nonfarm Payrolls report:
🟢 Arguments for Strong Jobs Update / Bullish Dollar
- S&P Manufacturing PMI Survey for May sign to Companies continued to hire new workers as the availability of candidates improved. Employment growth was generally strong and the fastest since last September.”
- S&P flash services PMI for May He also showed it “The rate of job creation was the fastest for ten months, as companies reported broadly unchanged levels of unfinished business as a result of larger capacity improvements.”
🔴 Arguments for updating weak jobs / falling dollar
- Initial weekly unemployment claims It accelerated in the first two weeks of May (229K to 242K in the week ending April 27, then to 264K in the week ending May 4) before coming in below ratings in the following weeks.
- CB Consumer Confidence Index He pointed to a more somber assessment of the labor market, with 43.5% of respondents saying jobs were “plentiful” in May, down from 47.5% in April, and 12.5% saying jobs were “hard to come by,” up from 10.6% last month.
Note: US job cuts, ADP Non-Farm Employment Change,
The ISM manufacturing jobs component of the PMI will be released on Thursday, June 1st and is likely to give more clues as to where the US jobs report data for May may go.
Previous issues and the impact of the risk environment on the US dollar
May 5, 2023
Action / Results: The US Nonfarm Payrolls reading for April came in at 253K, beating the consensus of 190K and lowering the Unemployment Rate from 3.5% to 3.4% instead of rising to the expected 3.6% reading.
Average hourly earnings also beat estimates, with wage growth coming in at 0.5% versus a forecast of 0.3%.
However, the March reading suffered a significant drop from the initially reported figure of 236K to just 165K.
Risk Environment and Internal Market Behaviors: This trading week started off slow, thanks to poor liquidity and market jitters stemming from banking sector woes and recession fears.
Volatility eventually picked up when central banks such as the Reserve Bank of Australia, the Federal Reserve and the European Central Bank highlighted their policy announcements.
The general shift to a more dovish policy tone, combined with a couple of downbeat US jobs indicators, has fueled a rise in risk appetite and expectations of potential non-farm payroll weakness – both of which led to steady losses for the pre-charge dollar. release jobs.
This was probably why the US Dollar enjoyed quite a comfortable rally when the actual Nonfarm Payrolls report beat estimates. Fed tightening hopes may have rebounded after headline readings came in green, although the rally faded with profit-taking before the trading week drew to a close.
April 7, 2023
USD pairs overlay: 1 hour Planned by TV
Action/Results: The US Employment Report for March came in closely with expectations at 236K (238K expected) vs. February’s revised 326K.
The unemployment rate fell to 3.5% from 3.6% and the average hourly earnings rate posted a monthly gain of 0.3%.
For many, this reflected resilience in the US employment environment and increased the odds of a Fed rate hike, which led to an overall bullish trend for the dollar when the report was released.
However, volatility remained muted compared to the USD price action earlier in the week, likely due to the numbers simply coming close to expectations.
Risk Environment and Internal Market Behaviors: This trading week has been full of first-rate catalysts, most notably the slew of US Economic Survey results pointing to slowing activity.
For the most part of the week, risk assets spent their time in the red, with the exception of Crude Oil which was able to take advantage of the surprising OPEC+ announcement to curb production starting in May.
Probabilities of price movement
Possibilities of feeling risky:
So far this week, the US dollar has been drawing support from the debt ceiling agreement reached over the weekend. Liquidity has picked up now that traders are back from the Memorial Day and Monday (Europe) holiday.
In addition, safe-haven assets are benefiting from downbeat Chinese PMI data, with most higher-yielding currencies lower against the US dollar and US stock futures in the red. Crude Oil was also in the red, as commodity traders prepare for this week’s OPEC meeting.
US dollar scenarios
Will the US economy continue its streak of stronger-than-expected non-farm payroll results this time around? Or will it finally confirm the long-standing assessment that there has been a slowdown for some time?
Based on previous releases, traders may still have a clear reaction to key numbers, especially if they dump the forecast again, before taking revisions to previous data into account.
Wage growth is also likely to be a major factor dictating the direction of the dollar, with market watchers keen to see if price pressures are likely to persist.
Base case:
Leading indicators are still hinting at resilience in the US labor market for another month, so a strong non-farm payrolls reading may be enough to keep the Fed support hawkish hopes.
Note that FOMC officials have reiterated the possibility of a June hike recently while the Fed’s latest decision remained muted on a possible pause, so the rise in average hourly earnings is adding fuel to the rate hike fire.
If you think that the rally in the US dollar has room to run, you can look into a possible long position against currencies with central banks of juice Switch to a less hawkish stance, such as the New Zealand dollar and the euro.
Alternative scenario:
If the actual numbers show the slightest sign of a peak in employment or warning signs of a downturn in the labor market, dollar traders could start to rage about the Federal Reserve tightening pauses as early as June.
After all, Fed Chair Powell mentioned that their policy decisions still depend on data and officials haven’t really committed to walking or pausing in their next decision yet.
Keep in mind that the dollar has made gains as of this writing, so it may be difficult for the bulls to sustain this rally as the week progresses, especially if other jobs indicators point to weakness or if risk appetite returns in strength.
Do not forget that the US debt ceiling bill has not yet moved to the House of Representatives for a vote in the middle of the week, so removing this hurdle may alleviate some of the uncertainty in financial markets and thus stimulate risk taking.
In this scenario, look for potential USD shorts against currencies where central banks are likely to tighten further (GBP) or may at least come close to ending easing sooner or later (CHF, JPY).
