NFP Preview: Four reasons to expect June's report to down the dollar

Time for King Dollar to be knocked off the throne? June's highly anticipated Nonfarm Payrolls report – due on July 2 and ahead of a long weekend – could provide other currencies an opportunity to bring the greenback back to the ground. Yohay Elam, an Analyst at FXStreet, lays out four reasons why June's jobs report could be a dollar downer.

Reopening is hard

“The US gained 559,000 positions in May but falling short of estimates once again. Some blame generous unemployment benefits and stimulus checks, while others mention that the covid crisis is far from over – some fear returning to being in contact. The skill mismatch was also compounded by a shortage of raw materials. Have all these issues been resolved between May and June? Probably not, yet expectations remain elevated. The economic calendar is pointing to an increase of some 700,000 jobs in June, substantially above May's hiring. All this may lead to a third consecutive disappointment.”

Powell's high expectations

A weaker number than economists estimate would become even worse given elevated expectations created by Federal Reserve Chair Jerome Powell. Even a satisfactory figure would serve as a reminder that restoring some 7.6 million jobs lost in the pandemic will take a long time. That could weigh on the dollar.” 

Wages could downplay inflation expectations

“Average Hourly Earnings rose by 0.5% in May and 0.7%, both elevated levels and beating expectations. Similar to weak job gains, another upside surprise in salaries could repeat itself for the third time. However, wages are more likely to decelerate as job growth remains weak, rather than beat expectations. If Americans have marginally less money in their pockets, that could ease inflation pressures and push the dollar down as well.”

NFP as a reversal trigger

“Investors seem to be keeping their powder dry ahead of the all-important NFP. It might take only a marginal miss – or even the jobs report merely meeting estimates – to trigger a move in the other direction. That means the greenback giving some ground.”