IFX Market Report: Monday 8th August 2022

The United States job market grew at a much faster pace than anticipated in July. Non-farm payroll rose 528,000 during the month and unemployment dropped to 3.5%, beating the Dow Jones expectations of 258,000 and 3.6% unemployment rate. Wage growth was also higher with a 5.2% hourly hour increase annually compared to the expected 4.9%. The figures show the job market remains strong despite a US economy struggling as inflation heads towards 10% and GDP falling by -2.5% for the first half of 2022, a sign that the American economy may already be in recession.
Yesterday, the Senate approved Joe Biden’s $430bn investment plan on health and climate. This envelope includes the largest investment ever committed in the US for the climate: $370bn to reduce greenhouse gas emissions by 40% by 2030. The text also provides for $64bn of investment in health. The plan will therefore require huge funding that will put the dollar under more stress and is likely to trigger more action from the Federal Reserve.

Indeed, M2 reached 27% growth in 2020. M2 is a measure of the money supply that includes cash, checking deposits, easily convertible near money, and is an indicator of money supply and future inflation, and as a target of central bank monetary policy. This is over 5 times the growth rate of 2019 which stood at 5%, and by the end of 2021, the M2 supply rate decreased but still stood at 13%. This growth was largely driven by the stimulus packages offered to all Americans during the pandemic. This investment is therefore likely to see the M2 supply rate maintained or increased, which will not ease inflation and may even worsen it.

Cable saw the dollar strengthen over good results in the job market last week. GBPUSD opened at 1.2165 Monday and closed at 1.2071 on Friday, marking a -0.78% change over the week.
GBPEUR followed a similar trend amidst information that the UK economy could face recession until Q1 2024. The pair opened at 1.1903 and closed at 1.1852, a -0.42% loss for the pound.
EURUSD remained stable with only a -0.09% change. The pair opened at 1.0179 and closed at 1.0172.

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