Never a dull non-farm
Non-farm payrolls data almost always provides the observers an opportunity to witness and potentially trade with some volatility in the markets. More often than not the salience of the event and the mixed expectations moving into it leads to more price fallout from the noise generated from the event instead of the signal attributable to it. There are exceptions to that rule and Friday’s non-farm payroll release was one such exception. The material outperformance that we saw within both the absolute monthly payroll numbers and the more approachable unemployment rate led to a decisive and lasting strengthening of the US Dollar.
Given how transparent the Federal Reserve was during their decision only last Wednesday, there was the distinct possibility that the high-salience numbers would fail to provide their usual seismic impact. Jay Powell’s Federal Reserve made their forward guidance on policy so plain that in the absence of a major shock from Friday’s numbers, interest rate expectations should remain well anchored. The readings showed that the US economy created 517,000 jobs in the month of January, bringing the unemployment rate down to 3.4%. Those numbers defied expectations for 185,000 jobs added and a 3.5% unemployment rate.
Despite the stability of rate expectations moving into the data release, the divergence from expectations was sufficient to dislodge incumbent pricing in the fixed income market. Accordingly, markets priced in further Federal Reserve interest rate adjustments with peak-Fed funds rates now priced north of 5%. That brought significant demand into the US Dollar driving the EURUSD exchange rate down on Friday to almost 1.08 and GBPUSD towards 1.20.
The strong Dollar-environment created by the non-farm payrolls release was supplemented by further soft data later on during Friday’s session. Purchasing manager’s indices for January from S&P global outperformed consensus forecasts and previous readings showing a faster than expected recovery in economic conditions within the US. The ISM index also significantly outperformed drawing significant flows to the Dollar whilst analysts’ perceptions of US economic fundamentals improved. This is good news for the Dollar, but bad news for other currencies whose valuations were beginning to enjoy a release from the prospect of the Fed curtailing its rate adjustment cycle.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Onto June A slew of strong US economic data over recent weeks had boosted expectations for how the culmination of the Fed’s two-day meeting would be presented to the public last night. The story goes back further. The narrative dominant in late-2023 of a US economy in need of restrictive monetary policy was unavoidable. The […]
Germany and the EU The Germany Supply Chain Act came into force in 2023 as a result of Germans wanting to do something good for employees in other countries in particular with respect to human rights and environmental issues. So far so good. But a combination of cost and bureaucracy overlaid with the difficulty of […]
Emergency Stop In the early hours of trading on Monday morning, sudden and significant buying pressure within USDJPY has markets wondering: is this the signal that local authorities are taking another stab at active market intervention? In a critical week for FX, with central bank decisions and a slew of top-level economic data from across […]