US Unemployment Falls but Private Payrolls Significantly Lower Than Expected

London - 2 July 2010

-Poor jobs market could ultimately undermine U.S recovery-

Non-farm payrolls data showed a larger than expected decline in June, falling by 125,000 rather than the expected 110,000. The U.S. rate of unemployment fell to 9.5%, from 9.8%. Crucially, however, private payrolls came in significantly lower than expected, rising by 83,000 as opposed to the forecasted rise of 110,000.

Markets reacted violently as they digested the latest figures. The euro gained 0.57% against the dollar ($1.2589), up from the $1.2550 before the report, and the dollar was at 87.34 yen compared with 87.60 yen pre-report.

Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments comments, “We were expecting further job losses but the private sector pick up was disappointing and it is concerning that the U.S.’ strong GDP number is not filtering down to the jobs market. This could ultimately undermine consumption, confidence and the recovery itself.

“With a $787 billion stimulus package pumped into the US economy, investors will have been expecting to see a more robust employment picture by now. Unfortunately, the US economy is stuck in a vacuum – dismal manufacturing and housing data have confirmed that growth is slowing.”

Bolsom continues, “It is highly unlikely that the Federal Reserve will even think about raising rates with unemployment so near to 10%. We have a high long-term rate of unemployment in the U.S and I don’t expect to see employment stabilise for another few years yet.”

Bolsom expects investors to close out on long dollar positions before the long weekend in the U.S, thereby continuing the dollar’s downward trend.

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