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USD pulls back after huge NFP miss


  • Non-Farm employment change: +20k vs +180k exp

  • Average Earnings Y/Y: +3.4% vs +3.3% exp

  • Conflicting jobs and wage figures leave USD searching for direction


The worst Non-Farm Payrolls (NFP) figure since September 2017 saw a knee-jerk reaction lower in the US dollar, but an upwards revision to the already stellar previous release and a stronger than forecast reading on wages could actually be seen as overall positive for the greenback. Turning to the data itself, the February NFP came in at +20k against consensus forecasts of +180k, in what on first glance seems to be a massive miss. The stark nature of this drop is even more readily apparent when you consider the prior reading was +311k. Having said that, the prior reading was revised marginally higher from 304k beforehand and it should be pointed out that today’s drop comes on the back of two very strong readings (December showed 222k jobs added). This data point is inherently volatile and if we look at a 3-month moving average a reading of 184k still suggests a strong labour market.  

The headline NFP showed its largest drop in 1 ½ years with the decline in the goods producing number of particular concern. Source: XTB Macrobond


Other aspects of the report are more favourable for the USD too, with average hourly earnings year-on-year of 3.4% topping estimates of 3.3% and rising from 3.2% previously. This is the highest reading in several years and due to this metric having a fairly strong positive correlation with inflation (measured by CPI) it could well present something of a headache for the Fed. With the market having pretty much priced in the end of the Fed hiking cycle this rise in wages may pose a problem and leave the central bank stuck between a rock and a hard place where they are forced to consider raising rates despite a clear slowdown in the global economy. This would further support the buck and no doubt draw the ire of President Trump.


US wages rose to their highest level in several years and this increase could well translate to greater inflationary pressures and present a headache for the Fed. Source: XTB Macrobond


 The US dollar has pulled back on balance since the data, but the declines remain fairly measured at present. The EURUSD spiked higher initially but is still struggling with the 38.2-41.4% fib retracement from 1.1231 to 1.1235. Recent lows around 1.1176 are in fact the lowest level since June 2017 and any move below there would open up the possibility of further declines.

The gains seen in EURUSD have been measured so far, with the NFP report not as negative for the buck as it first seems. Source: xStation


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