The US Dollar is moving sideways below two-month highs near 0.8700. The pair remains buoyed on the back of broad-based USD strength with the overall bullish trend losing momentum
The recent strong US data, which has crushed hopes of further large cuts by the Fed and rising hopes that Trump will win a second term next week are underpinning US Dollars strength.
The market awaits a batch of key data releases this week, starting with the US Consumer Confidence and JOLTS Job openings data, due later on Tuesday.
The technical picture shows the bullish trend losing momentum. The bearish engulfing candle printed on Monday is a negative sign and the bearish divergence on the 4-hour RSI points in the same way.
Support at 0.8645 is holding bears for now. Below here, the next targets are 0.8615 and 0.8555. Resistances are 0.8700 and 0.8745.
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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