Weak American jobs growth hits the dollar

The dollar and US Treasury bond yields have been sent tumbling by a disappointing official jobs report, which crushed market expectations of an interest rate hike from the Federal Reserve this autumn.

The world’s biggest economy created 223,000 jobs in June, below the expectations of economists. And May’s impressive 280,000 figure was revised down to 254,000. There was also a downgrade of April’s figure. Wage growth undershot expectations too, with average hourly earnings flat at $24.95 on the month and the year-on-year expansion rate dipping from 2.3 per cent previously to just 2 per cent.

The report sent the dollar index down instantly, by around 0.5 per cent, and the 10-year sovereign debt yield retreated by around eight basis points to 2.38 per cent, as traders bet against the Fed putting up the cost of borrowing at its September meeting – an outcome that most economists had pencilled in.

“Just when it seems obvious that the labour market data is stepping up a gear, along comes the payrolls result and delivers a large portion of ‘egg on face’,” said Rob Carnell of ING. “Overall, this cannot be regarded as a strong release, and will dampen market thoughts of Fed lift-off.”

The unemployment rate fell to 5.3 per cent, from 5.5 per cent the previous month. But this was mainly due to another fall in the participation rate, as 432,000 people dropped out of the labour force. The participation rate of working-age Americans now stands at 62.6 per cent, the lowest reading since October 1977.

“If we continue to get this type of payrolls report again in July and August, the Fed won’t move in September,” said Mark Zandi, chief economist at Moody’s Analytics. “If they don’t see wage growth, they could wait until next year.”