US Dollar Weakens Following Non-Farm Payrolls Release
The US Dollar failed to rise after the release of US Non-Farm Payrolls on Friday due to sub-par growth in wages which took the edge of inflation expectations.
US payrolls rose by 235k in February, which was well above forecasts of 200k but not above the January figure of 238k.
The Unemployment Rate remained stuck at 4.7%, due to an increase in the Participation Rate by a basis point, which showed more people joined the job hunt in February.
Wages were the big disappointment in the report, however, showing only a 0.2% increase when analysts had forecast a more ambitious 0.3% form the precious month.
Wages tend to be a stronger indicator of inflation rather than growth in the number of jobs as higher earnings are more directly related to inflation.
To the some analyst's surprise the increase in payrolls did not set off another rally in the Dollar - a sign the currency may have absorbed a lot of good news already and has no more value to stretch higher.
City Index's Kathleen Brooks said that the reason the Dollar had not rallied was that the data had not increased the chances of a June Fed meeting rate rise significantly.
"While this jobs data is solid enough to sign, seal and almost delver a rate hike from the Fed next Wednesday, it is not too hot to force the Fed to embark on more than three rate hikes this year, which is what the market expects. In fact, since the release of the February jobs data market expectations of a US rate hike next week (according to the Fed Fund Futures market) have retreated a tad, down to 98% from 100%. Also, we haven’t seen any major increase in expectations for a June rate hike; the market is currently expecting an even chance of a subsequent hike in three months’ time," commented the analyst.
The shock rise in ADP payrolls on Wednesday and increasingly hawkish Fed expectations for the FOMC meeting on Wednesday when the open market committee is now certain to raise rates had already pushed up the Dollar significantly and there was probably little room left for its appreciation.
Only an absolutely knockout NFP figure of 90k above expectations would have led to a further leg up, but as it was only an extra 35k.
Hats off to Kathy Lien, of BK Asset Management, who we reported prior to the event as noting the market's reluctance to break key levels against some major currencies was a sign that Dollar strength would be faded.
She was right on the money in suggesting that the GBP/USD could be in for a shot of redemption on anything other than a blow-out release.
Cable lost ground, falling to 1.2140 from 1.2170 prior to the release.
Against the Euro the Dollar fell from a pre-payrolls level of 1.0630 to 1.0640 afterwards.
June's the Thing
Initial market reactiosn are not everything, and there is still the possibility that the Dollar could rally once markets have settled down and traders allowed the data to sink in - indeed it now appears that as a March rate hike is fully priced in attentiosn will turn to June.
There's no doubt that the Federal Reserve will be raising interest rates next month with Fed Fund futures pricing in 100% chance of tightening.
“Where it will make a difference is in June as futures currently show only a 50% chance of tightening at the next quarterly meeting but if even one part of the jobs report fails to meet or beat expectations, traders could use it as an excuse to take profits on long Dollar positions,” says Lien.
