Why the US Dollar Rose Despite US Non-Farm Payroll Report Coming in Weaker

The key non-farm payroll report showed 151K American’s found jobs in January, significantly less than the 262K that found work in December. Despite the negative headline, the USD rose.

Markets were looking for a figure of 190K. Another disappointing economic report in a week that has only disappointed.

Yet, the dollar rose! Why?

“The headline print of 151k jobs created in January posed initial concern and shock among market participants, only for nerves to be settled by a hike in average hourly earnings and drop in unemployment,” says Alex Lydall, Senior Trader at Fornix Partners.

Average hourly earnings rose 0.5% in January, and 2.5% over the past twelve months, this is the highest year-on-year reading since mid-2009.

"To us, this upward trend in wage gains is fundamentally more than warranted given the fact that the US economy is approaching full employment," says Harm Bandholz, Chief US Economist at UniCredit.

The Federal Reserve will feel more confident that they can stick to their initial interest rate hike plans set out in December in the wake of this data.

"The report unequivocally supports the Federal Reserve’s (and our) baseline view that further gradual rate hikes are warranted. After all, ongoing labor market dynamics are the main driver of consumer spending, which in turn is the main driver of economic growth in the US," says Bandholz.

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Michael Gapen, Barclays Bank in New York:

"The divergent signal from the employment report, plus the ongoing volatility in financial markets, leads us to revise our outlook for the path of Federal Reserve policy; we now expect two rate hikes this year in June and December, as opposed to three in our previous baseline."

Lloyds Bank:

"These data add to the confusion about the US economy. Labour market looked a lot stronger in Q4 than the tepid GDP growth and this report points to more of the same.

"Moreover, the fall in unemployment rate and rise in earnings growth point to potential upside risks to domestic inflationary pressures, which have seem to have been all but forgotten by markets amid the concerns about international factors such as China and the oil price.

"Against this background, the US Fed is likely to continue to sit back for now and monitor developments."

Dennis de Jong, managing director at UFX.com:

“However confident Janet Yellen and her Fed colleagues were when raising interest rates in December, the US data released in January must be giving them food for thought – and today’s poor non-farm payroll figures are no different.

"Adding less than 200 thousand jobs for the first time since October, coupled with lower than expected GDP and productivity figures, has taken some of the shine off of the previously buoyant US economy.

"Yellen won’t be worrying too much just yet, as other major economies have pared down growth forecasts amid global volatility. Many observers will surely be adopting a wait and see approach."