Investing.com – A better than expected July employment report caused the dollar to turn higher as financial markets raised the odds for a rate hike from the Federal Reserve (Fed) on Friday.
After the scare from the employment report in May that showed the weakest job creation since September 2010, concerns over the state of the U.S. labor market waned on Friday as the July data showed a second consecutive month of strong employment data.
The U.S. economy created a better-than-expected 255,000 jobs in July, while the prior month’s data was revised upwards to 292,000.
Of particular interest for the Fed, average hourly earnings rose month-on-month by 0.3%, beating expectations for a 0.2% rise. They were up 2.6% on the year.
Almost all of the data was positive with perhaps the exception of the jobless rate that remained steady at 4.9%, compared to expectations for a drop to 4.8%. However, part of the explanation for the higher jobless rate would be due to the increase in the participation rate.
After the report, markets increased the odds that the Fed could return to the path of policy normalization sooner than expected, though expectations continued to be that the U.S. central bank will hold off until the coming year.
Still, the probability for a rate hike in September jumped to 18%, from the 12% registered prior to the data, according to CME Group’s FedWatch tool.
Fed fund futures also increased the odds for an increase in December to 46.5%, compared to 34.4% earlier.
Regardless, markets weren’t discounting a move until the March 2017 decision.
The strong data also pushed the dollar to intraday highs. The greenback had been trading with losses in European trade prior to the release of the data.
Some analysts admitted that the positive report could make a rate hike a possibility this year, although most felt that the move, if it came, would arrive in December.
In any case, it’s worth noting that the next Fed meeting will not take place until September 20-21 with a slew of data, including the August employment report, between now and then.
The next scheduled appearance of Fed chair Janet Yellen will take place on August 26 at the annual economic symposium in Jackson Hole, Wyoming.