Fed Rate Hike Odds Surge Following Positive July Employment Report

Investing.com – The July employment report surpassed expectations, leading to a rise in the dollar as financial markets increased speculation for a rate hike from the Federal Reserve (Fed) on Friday.

After a concerning employment report in May, which revealed the weakest job growth since September 2010, worries about the U.S. labor market eased on Friday. The July data indicated a strong performance in employment for the second consecutive month.

The U.S. economy added significantly more jobs in July than anticipated, while the previous month’s figures were adjusted upward to 292,000.

Moreover, a key metric of interest for the Fed indicated a month-on-month increase of 0.3%, outpacing the expected 0.2% rise, and marking a year-over-year increase of 2.6%.

Most indicators in the report were positive, though the unemployment rate remained steady at 4.9%, contrary to expectations for a decrease to 4.8%. Part of the reasoning behind this stable unemployment figure could be attributed to an increase in job seekers.

Following the report, markets adjusted their outlook, leaning towards the likelihood that the Fed may resume its policy normalization process sooner than previously predicted, although many still believed that any action would be deferred until next year.

The chances of a rate hike in September increased to 18%, up from the 12% noted before the data release, according to CME Group’s FedWatch tool.

Additionally, expectations for a rate increase in December rose to 46.5%, compared to 34.4% beforehand.

Nonetheless, markets were not anticipating any action until at least the March 2017 decision.

Prior to the report’s release, the dollar had been experiencing losses during European trading.

Some analysts acknowledged that the positive employment report could open the door to a rate hike this year, but the prevalent sentiment was that if such a move were to occur, it would likely happen in December.

It is important to note that the next Fed meeting is scheduled for September 20-21, with multiple data releases, including the August employment report, set to occur before then.

Fed Chair Janet Yellen’s next scheduled public appearance will be on August 26 at the annual economic symposium in Jackson Hole, Wyoming.