Commenting on a rangebound dollar and Treasury yields down following Nonfarm Payrolls data, Ali Jaffari, Head of North American Capital Markets for Validus Risk Management, said: “A salient US data point this morning as US Nonfarm Payrolls for the month of June surprised to the upside with an increase of 850K vs a consensus of 720K. However, with FX markets largely pricing this in, we are not seeing significant moves as a result, and the dollar index remains largely range bound. Meanwhile, Treasury yields are down 2-3bps on the release, although with the key labor force participation rate unchanged at 61.6%, we’d expect the recent rangebound trend to continue.
“Employment data remains a key focus for the Fed and a continued convergence to pre-pandemic levels will certainly drive the thinking on tapering discussions and supports a build in US rate hike expectations. However, with two more job prints until the Sep FOMC, the Fed will likely hold off until there is a clear view on the return of labor force supply.
“Finally, with net USD positioning still short, we can see a slight dollar increase in the near term as the pace of short covering picks up.”