On Friday, August 14, during the Asian session, the US Dollar Index traded lower, pulling back to around 99.80, a drop of approximately 0.16%. The weaker-than-expected US Producer Price Index (PPI) data for July further diminished expectations for a September rate hike by the Federal Reserve, stripping the dollar of its most recent core support. However, the dollar's decline did not intensify, as the underlying resilience of the labor market continues to provide a buffer.
Analysts from Commerzbank, including foreign exchange strategists Volkmar Baur and Tatha Ghose, point out that the US labor market is exhibiting a unique "low-hire, low-fire" dynamic. Initial jobless claims and the unemployment rate remain at exceptionally low levels, with the four-week moving average dipping below 200,000 for only the fourth time in the past five years. Despite this, wage growth is showing only preliminary signs of a slowdown, without a clear trend having been established. The analysts emphasize that any sustained moderation in wages and inflation will take time to materialize. This suggests the Federal Reserve has no clear justification for easing policy in the near term, meaning the dollar will continue to find support during this transitional period.
The "low-hire, low-fire" pattern in the labor market is persisting, and a definitive slowdown in wage growth has yet to be confirmed. The Commerzbank analysts note that while the rates of quits, layoffs, and hiring have seen modest improvements in recent months, all three indicators remain low relative to the unemployment rate. Compared to the historical experience of the past 25 years, such a low unemployment rate would typically be accompanied by a more dynamic labor market—more workers quitting to seek better opportunities and more companies actively hiring. This dynamic is currently absent, and the "lack of vitality" in the labor market represents a noteworthy structural characteristic. Intuitively, this lack of vigor should be reflected in lower wage growth. However, the reality is different. Based on the trend in average hourly earnings, wage growth remains "very robust" relative to the current unemployment rate, with the latest reading at 3.2%. While there are initial signs that a softening labor market is beginning to impact wage growth, it will take "several more months" to confirm whether this trend is truly established.
The transmission of wage growth to inflation takes time, which supports the dollar in the short term. A slowdown in wage growth directly impacts inflation and would reduce the pressure on the Federal Reserve to raise rates. However, the Commerzbank analysts stress that this transmission mechanism requires time. Until wage growth clearly decelerates and begins to consistently affect inflation, the Fed will remain in a "waiting for more evidence" phase, making it difficult to shift towards a dovish stance in the near term. From a currency impact perspective, the firm highlights an intriguing observation: last Friday's nonfarm payrolls report had a greater impact on the Euro versus the US Dollar than Wednesday's inflation data. While the payrolls surprise was indeed more significant than the Consumer Price Index (CPI) release, which was largely in line with expectations, this underscores the point that investors should not entirely overlook the informational value of the labor market, even as they focus intensely on inflation data. The persistently low level of initial jobless claims (209,000, with a four-week average below 200,000) provides support for the dollar from the employment side.
It will be difficult for the dollar to weaken substantially in the near term, as the data requires time to be verified. Synthesizing the Commerzbank analytical framework, the current situation for the dollar is as follows: the cooling of inflation has been confirmed by July's data, but the "resilience" of the labor market has not yet broken down. The slowdown in wage growth is merely an "initial sign," far from the stage of establishing a trend. The Federal Reserve will need more data before its September meeting to verify whether inflation is sustainably declining and whether the labor market is genuinely softening. Until then, it is difficult for the dollar to experience a substantial, trend-based decline. Even with the market heavily pricing in a 'no move' in September (with a probability nearing 70%), the dollar's downside remains limited. As Commerzbank emphasizes, the supportive environment for the dollar will persist until the slowing trends in wages and inflation are more fully confirmed—a process that could take "several months." For traders, this implies that the dollar's adjustment is likely to be gradual and halting, rather than a one-way, sustained decline.
In summary, Commerzbank's analysis provides a logical basis for the dollar's current "resistance to falling." The "low-hire, low-fire" configuration in the labor market keeps the unemployment rate and initial jobless claims at extremely low levels. The slowdown in wage growth is still in its "initial signs" phase and remains a long way from establishing a trend. Until the wage-to-inflation transmission channel is fully clarified, the Federal Reserve lacks sufficient reason to pivot towards easing, and the dollar will therefore continue to find support. For the market, this suggests the dollar's depreciation process may be slower and more erratic than the inflation data alone implies. The August employment report will be a crucial window for verifying whether the labor market is truly softening. Until then, the dollar is likely to maintain a pattern of weak, range-bound trading rather than a trend-based decline. As of 15:02 Beijing time on August 14, the US Dollar Index was at 99.80.
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