US jobs performing better than expected

Nonfarm Payrolls in the US rose by 528,000 in July, the data published by the US Bureau of Labor Statistics revealed on Friday. This reading followed June’s increase of 398,000 and came in better than the market expectation of 250,000. The Unemployment Rate edged lower to 3.5%.

They also revealed that the annual wage inflation, as measured by the Average Hourly Earnings, remained unchanged at 5.2%, compared to analysts’ estimate of 4.9%. Finally, the Labor Force Participation Rate declined to 62.1% from 62.2%.

Investors had been in anticipation of the report for further hints of how the US economy is faring. The jobs report is a relief for the greenback when taking into consideration the data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased last week.

However, the data now raises the prospects of a 75 bp hike from the Federal Reserve, which is not going to be favourable for risk sentiment nor the pound. The odds of a 75 bps hike have leaped to 61% from 40% on the release.

EUR

After lagging for much of 2021 and 2022, the European Central Bank continues in a manner that suggests the gap between the ECB and other major central banks interest rates will narrow further.

After delivering a 50-bps rate hike in July, the largest such increase since 2000, rates markets are discounting a 100% chance of a 25-bps rate hike in September and an 88% chance of a 0.50% rate increase, which would bring the ECB’s main rate to 0% Rates markets are pricing the ECB’s main rate to rise to 1.13% by the end of 2022. The ECB continues to balance concerns between multi-decade highs in inflation, weakening growth, and a resuscitated Eurozone debt crisis.