- March NFPs miss insignificantly at +192K, but Unemployment rate holds at 6.7%.
- US Dollar initially higher; Yen weakens across the board broadly as high yield FX rallies.
- US 10-year Treasury Note yield ranges between 2.756% and 2.799% around data.
The March US Nonfarm Payrolls report was disappointing in several regards and yet surprising in others. The two main headline data points, however, missed expectations marginally, leading to a very modest USD-negative reaction in the wake of the labor market report. The headline change in NFPs at +191K and the unemployment rate staying on hold at 6.7% aren’t quite as good as traders were hoping for.
If there were concerns that a strong labor print compounded by further signs of growing wage pressure would accelerate the Federal Reserve’s policy tightening cycle, fear no more: average hourly wages are up by +2.1% over the past year, slipping from the +2.3% pace in February. This is perhaps the most disappointing aspect of the report, as it indicates price pressures are likely to remain soft.
The significant aspects of the report are that the base of the labor market is strengthening. The labor force participation increased by two-tenths of one percent and yet the unemployment rate stayed unchanged; the labor market was able to fully absorb the incoming supply of new participants. Previously, concerns over the US labor market centered around how the dropping participation rate was the driving force behind the lower unemployment rate.
Here’s the data sending the US Dollar on a ride:
- Change in Nonfarm Payrolls (MAR): +192K versus +200K expected, from +197K (revised higher from +175K).
- Change in Private Payrolls (MAR): +192K versus +200K expected, from +188K (revised higher from +162K).
- Unemployment rate (MAR): 6.7% unch versus 6.6% expected.
- Participation Rate (MAR): 63.2% from 62.0%.
US yields have been steadily rising the past few weeks (bond prices falling), but the slightly weaker than expected US labor market report has provoked the belly of the yield curve – 3Y to 7Y notes – lose the most ground. This bull flattening of the middle portion of the yield curve has proven to be US Dollar negative.
EURUSD 1-minute Chart: April 4, 2014 Intraday
Charts Created using Marketscope – prepared by Christopher Vecchio
The volatility in the US 10-year Treasury Note yield pushed around the US Dollar across the board, but the most noticeable gains were seen in the EURUSD, which had been hit by a dovish ECB meeting yesterday. The EURUSD slipped heading into the release, and ended up rallying from its $1.3689 pre-print to as high as 1.3730 during the first thirty minutes of trading after the report.
--- Written by Christopher Vecchio, Currency Analyst
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