The euro has climbed above $1.11 today, and looks to be on track to avoid three consecutive sessions of declines after the employment-cost index revealed that wage inflation in Q2 was significantly lower than earlier data had indicated. Following a 0.7% rise in Q1, the index climbed by only 0.2% in Q2, its smallest gain since 1982. Economic experts were anticipating a 0.6% increase.
The index typically does not generate such a powerful market response, but the data, when taken into consideration alongside yesterday’s less than impressive gross domestic product data, has altered investors’ target date for the Federal Reserve’s imminent interest rate increase. Many now think the change will take place in December rather than September. The next increase will be the first since 2006.
The Labor Department’s NFP report from recent months had indicated that wage inflation had been fairly consistent. Several things have combined this week to lessen confidence about the next move by the Federal Reserve. In regards to a September rate increase, the most recent Fed statement did little to support it.
The euro most recently trimmed gains somewhat to trade at $1.1092. The currency was trading at $1.0938 yesterday afternoon in New York. The dollar was last trading at ¥123.58, down from ¥124.13 yesterday afternoon in New York. The ICE U.S. Dollar Index is down over 1%, reading 96.5110 at last check.
Federal Reserve policy makers revised their perspective on the U.S. labor market in their most recent policy statement, including the word “some” in the part of a statement that had said they needed to see “further improvement” within the labor market. This indicated that policy makers need only see marginal improvement in the employment market to rationalize a rate increase.
Even so, recent data suggests a lack of any progress, even suggesting that conditions are declining. Friday’s drop places the dollar on track to post a weekly loss in opposition to the euro, but the dollar continues to be on track to close out the month higher versus the currency.