The demand for labor in the US is falling, the EUR/USD exchange rate approached 1,09

In the US, the extreme labor shortage, which we observed mainly in 2021-2022, is slowly becoming a thing of the past. The situation on the labor market normalizes quite quickly. This was confirmed yesterday. The JOLTS survey showed a clear decline in labor demand.

So far, the dollar has not reacted clearly to these data. This time it was different. The USD weakened and US bond yields, mainly from the short end of the yield curve, fell significantly. Bad data turned out to be good for Wall Street, which resulted in clear increases in stock indices.

Cooling down of labor demand

The number of job vacancies (JOLTS) fell more clearly than analysts expected in the run-up to the publication. Of course, it has not yet returned to pre-COVID-19 levels, but the downward trend is clear. yesterday the result is the lowest since the beginning of 2021 , which suggests a cooling in labor demand.

This is good news for the Fed. Powell feared that the continuing labor shortage could push wages up further, thus becoming a factor in inflation and making the second-round effect much stronger. These fears will decrease if next labor market data will follow this trend. We will get to know the ADP report today - a much worse reading than the previous one is expected (195 vs 324), and on Friday NFP report. Tomorrow, data on American spending will be presented, including the PCE "core" index, which is the US central bank's preferred measure of inflation.

The positive phenomenon is that the decrease in the number of open positions, which we have been observing since the beginning of 2022, not accompanied by an increase in the unemployment ratewhich stands at 3,5 percent. Forecasts point to the same reading in August. This may indicate that the labor market is only slightly affected by the phenomenon of unmatched unemployment.

The indices reacted with increases

It is quite understandable that as a result of the data the dollar reacted with weakening and US debt yields fell. Market to a lesser extent, he began to assess the likelihood of further interest rate hikes by the Fed in September and November. The indices reacted with increases, which also seems to be logical, because yesterday's publication brings us closer to the end of the entire tightening cycle and at the same time to the beginning of the monetary easing process - i.e. the first cuts.

EUR / USD exchange rate approached the level of 1,09 and at the same time the upper limit of the descending channel, which began exactly on July 18. However, the chart does not show a breakthrough so far.

EUR/USD daily chart. Source: Oanda TMS Brokers

One can, of course, assume that the lows slightly below 1,08, which were set last Friday, end the entire downward correction. However, for this to happen, it will be necessary to overcome this technical barrier and this is where the data we will get today and in the coming days may help.

Source: Łukasz Zembik, OANDA TMS Brokers