Dollar Soars on "Crazy Strong" U.S. Jobs Report

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Pound Sterling is selling off against a resurgent U.S. Dollar following the release of some hotter-than-expected U.S. job and wage numbers that eliminate the odds of a Federal Reserve rate cut in March.

The U.S. reported a whopping 353K jobs were created in January, eclipsing the market's expectation for 180K.

Adding extra spice to the Dollar bulls' buffet was an upgrade to the previous month's print to 333K. Wages (average hourly earnings) increased 4.5% year-on-year in January, up from an upwardly revised 4.4% and above the consensus for a retracement to 4.1%.

"Crazy strong jobs number means Fed will wait," says James Knightley, Chief International Economist at ING.

These numbers make a mockery of a market that was priced for a rate cut from the Fed as early as March and pushes back the timing of this first cut towards mid-year, at the earliest. In fact, with numbers like these, is it necessary for the Fed to cut at all?

"We think that today’s payrolls report has all but completely eliminated any lingering possibility of a March interest rate cut from the Federal Reserve," says Matthew Ryan, Head of Market Strategy at Ebury.

Indeed, this is a healthy economy that saw its unemployment rate remain at 3.7%, whereas the market expected a loosening in labour market conditions to reflect an uptick in unemployment to 3.8%.

The Dollar was bid right across the board as U.S. bond yields rose in testament to a market that is rapidly reconsidering its expectations of when the U.S. Fed would move to cut interest rates.

Above: U.S non-farm payroll outturns. The trend of a cooling jobs market looks to be turning. Image courtesy of ING.

The Pound to Dollar exchange rate is currently quoted two-thirds of a per cent lower at 1.2664, the Euro to Dollar exchange rate is down 0.68% at 1.0798.

"Today’s data makes us increasingly confident in our view that we’ll have to wait until the June meeting for the first cut," says Ebury's Ryan. "This delayed start to easing should be bullish for the dollar, and we continue to see upside potential in the US currency in the near-term."

Analysis from ING Bank finds that the non-farm payroll report is at odds with other data prints, which suggest a cooling jobs market. "Labour market surveys are far, far weaker, with both the ISM manufacturing and services sector surveys in contraction territory - indicating job shedding," says Knightley.

Above: ISM services employment plunge points to weakness in payrolls. Image courtesy of ING.

Economists will therefore keep a close eye on the ISM services employment index update due Monday.

"It collapsed in January, and if it doesn’t dramatically rebound, then we would be worried that payrolls could soon start to roll over," says Knightley.

ING maintains a view that the Fed will cut rates in May.