FX.co ★ Strong NFP data and inflation's downward correction might be a prologue to a change in the Fed's monetary policy

As expected, the reported US employment data really came as a surprise.

The US economy gained 943,000 new jobs last month against the forecast of 865,000. The June figures were also significantly revised upwards to 938,000. The unemployment rate also pleased with its decline to 5.4% from 5.9%, against the expected decline to 5.7%.

Additional figures that supported the positive mood in the markets were the average hourly wages, which maintained a growth rate of 0.4% in July against the forecasted decline to 0.3%. On an annualized basis, it grew by 4.0% against 3.7% and expected growth to 3.9%.

In general, the data really turned out to be strong and significantly higher than expected, which led to an increase in demand for company shares. But at the same time, the US dollar noticeably rose against the major currencies, and the price of gold collapsed to the level of $ 1700.00 per ounce.

A significant contribution to the growth of new jobs was made by employers in the service sector, who hired more than all the others – 380,000. They were supported by the health sector, +90,000. A significant number of new jobs were provided by government agencies – 240,000. It is worth noting that the growth in the number of new jobs was the highest since 2020.

If the market reaction on Friday to this data was expected predictably, then how will traders behave today and this week?

We believe that the positive dynamics of the market may be local. Perhaps, a one-time strong increase in new jobs is unlikely to allow investors to believe that the labor market has really begun to actively recover. In order for this to happen, a trend is needed, which has not been observed recently. In addition, the desire to buy risky assets may be negatively affected by the opinion that the beginning of the labor market recovery will really be a signal for the Fed to decide to change the course of monetary policy amid high inflation. It can be recalled that it currently stands at 5.4%.

Moreover, investors are unlikely to want to take any important action while waiting for the publication of new data on consumer inflation, which will be presented this Wednesday.

Based on this, it can be assumed that the markets may see a pullback on the dollar rate today after its strong growth on Friday, as well as the uncertain dynamics of the US stock market amid generally positive dynamics in Europe, which is supported by the published positive volume data, export, and trade balance of Germany.

With regard to this week's possible dynamics of the market, it can be noted that a lot will depend on US consumer inflation data.

Forecast of the day:

The USD/JPY pair may continue to locally rise to the level of 110.60, and then to 110.80 after rising above 110.35.

Gold's price may also recover to 1763.32 and then to 1793.30 in anticipation of the publication of US inflation data.