Dollar Weakens After Labour Report Shows Slowdown in Wage Growth
The number of people gaining employment in the US rose by a higher-than-expected 211k in April according to a report from the Bureau of Labour Statistics, however, the same report showed a slowdown in wage growth which weighed on the Dollar.
April Non-Farm Payrolls (NFP’s) rose by 211k, beating market expectations of 185k, and more than doubling the surprisingly low 98k reading from March – which itself was revised down to 79k.
Average Earnings rose by 0.3% per month, in line with forecasts, and above the 0.1% of the previous month, however, the yearly reading decline to 2.5% which was below expectations and the one black spot in the report.
The Unemployment Rate fell to 4.5% from 4.6% when it had been forecast to rise to 4.7%.
The Participation Rate, meanwhile, fell to 62.9% from 63.0% previously, taking some of the shine off the fall in the Unemployment Rate, as it reflected a reduction in the total number of people in the labour force.
The Dollar traded with a lot of volatility in the minutes which followed the release, initially gaining against the Euro, with EUR/USD falling to 1.0952 from 1.0962 as the market noted the headline figure but then rising to 1.0991 as it digested the less positive details.
Against sterling, it was a similar story, with the GBP/USD exchange rate falling to 1.2929 in the minute after the release but then rising to 1.2959 over the next quarter of an hour.
Overall the stats increased the probability of the Federal Reserve hiking rates in June said analyst Royce Mendes of CIBC Economics.
“A turnaround in data flow was necessary to see the Fed go in June, and today's payroll report got the ball rolling,” said Mendes, however, he was disappointed in the subdued rise in annualised wages, which may have contributed to the backlash against the Dollar after some time had elapsed.
“The annual rate of wage growth is now at the bottom end of the range it's been in since mid-2016 and is notably below the Fed's 3-4% preferred rate. Overall, the headline gain in payrolls and decrease in the unemployment rate is a step in the right direction, however, the wage figures might limit some of the market reaction,” said the CIBC analyst.
