Once, twice..
Three times a Dollar rally? With the market having been delivered a strong jobs report last week, all eyes were on yesterday’s US CPI print for greater clarity on the macro data set. As a reminder, on Friday of last week, non-farm payrolls data showed the US economy added 303,000 jobs in March. This was north of 50% above expectations in terms of new payrolls created and even showed a month-on-month acceleration in job creation. Compared with an expected fall from February’s 275k statistic, this painted the image of a strong economy by virtue of its labour market. This publication created a significant fallout in markets with the Dollar spiking significantly higher within major crosses. However, the gains were remarkably short lived with any residual Dollar strength being hard to observe within only an hour of the data release.
The reason why gains didn’t last is far from black and white. More likely than not it was that 100 thousand jobs doesn’t define an economy the size of the US. Alternatively, US jobs were always going to play second fiddle to inflation and growth data, so perhaps markets were waiting for further hard data due this week. However, moving past that debate, more importantly, speculation had abounded whether further stand out data in the form of yesterday’s CPI data should it have arrived would be met with similarly short lived fanfare. At least as far as the European and overnight sessions were concerned, the move has been significant and sustained in the face of further hot inflation data.
Despite expectations for moderating inflation, Core CPI yesterday was read at 0.4% month on month, consistent with an annualised rate double that of the Fed’s target. In conjunction with factors including rising commodity prices as we highlighted yesterday, the prospect of a June cut from the Fed was swiftly priced out. Higher short term yields raised USD demand catalysing the stronger Dollar we have been foreboding for some time now. Cable and EURUSD both lost over one cent reflecting a higher for longer rates narrative. Whilst today’s ECB decision will be critical to confirm the fate of EURUSD, it will be hard for markets to forget yesterday’s data in a hurry.
Discussion and Analysis by Charles Porter
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