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Market Wire:
Greenback Slides After Disappointing US Jobs Report

Don Curren June 7, 2019

Sharply disappointing US jobs data triggered a decline in the greenback Friday morning as the report was viewed as bolstering the market’s newfound confidence an interest rate cut from the US Federal Reserve could be in the offing in the next few months.

The euro gained about 0.4% against the US dollar in the wake of the nonfarm payrolls report’s release at 8:30 am EDT. The DXY dollar index dipped by about 0.1%.

The US Bureau of Labor Statistics said nonfarm payroll employment edged higher by 75,000 in May, less than half of the 180,000 expected by economists.

Monthly  job gains have averaged 164,000 in 2019, compared with an average gain of 223,000 per month in 2018, the BLS noted.

The unemployment rate remained at 3.6%, consistent with market expectations.

Employment continued to trend up in professional and business services and in health care, the BLS reported.

Both the labor force participation rate, at 62.8% and the employment-population ratio, at 60.6& were unchanged in May.

The tepid jobs print will certainly reinforce the view the US Federal Reserve could cut interest rates relatively soon in an effort to bolster the long-lived but flagging expansion in the US economy.

The data follow close on the heels of remarks from Fed Chair Jerome Powell on Tuesday prompted markets to raise the estimated probability of an interest rate cut from the US central bank.

Referring to “recent developments involving trade negotiations and other matters” the US central bank chief said, “We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”

Markets seized upon those rather noncommittal remarks as a signal that a rate cut was becoming more probable, a development that initiated a sharp slump in the US dollar and a re-evaluation of the likely probability of a rate reduction in US interest rate markets.

By Thursday, the data from the CME Group indicated the US overnight indexed swaps market was pricing in a roughly 21% probability of a 25-basis-point rate cut from the Fed at its next policy meeting on June 15. But the market’s implied probability of a cut by the following meeting, on July 31, was at 56%.

North of the border, Statistics Canada reported the unemployment rate was down 0.3 percentage points to 5.4%, as the number of people looking for work decreased sharply following little change over the previous three months. The unemployment rate in May was the lowest since comparable data became available in 1976.

Employment rose by about 28,000, much stronger than the anticipated decline of 5,500, following a strong increase in April.

Compared with May 2018, employment grew by 453,000 or 2.4%, reflecting gains in both full-time (+299,000) and part-time (+154,000) work. Over the same period, total hours worked were up 1.0%.

The consensus expectation was for a decrease of 5.5K jobs in May after the astonishingly large gain of 106.5K in April, while the jobless rate was seen holding steady at 5.7%.

The Canadian dollar extended its recent gains against the tottering US dollar after the two jobs reports were released, rising by roughly 0.4% against the greenback.

However, it’s important to remember that Canada’s labor force survey is a highly volatile data series, and focusing on longer-term, multi-month trends provides a more accurate reading of how the country’s job market is actually performing.

Bottom Line: Disappointing US jobs data for May has intensified speculation that the Fed could cut rates in the coming months to revive an apparently weakening US economy, but the market is in danger of over-estimating the likelihood and/or imminence of a cut, suggested some of the greenback’s losses in the aftermath of the report could be reversed. The current volatility of the global trade and policy environment makes predicting the US dollar’s flight path in coming sessions even more problematic than usual.

Don Curren
Market Strategist and Content Editor


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