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February NFP Beats Headline Expectations, Mixed at the Margin - USD Neutral

February NFP Beats Headline Expectations, Mixed at the Margin - USD Neutral

2016-03-04 14:30:00
Christopher Vecchio, CFA, Jason Cheung,

Talking Points:

- US economy added +242K jobs in February, +47K above the forecast.

- Unemployment rate holds, wage growth deteriorates to +2.2%.

- EUR/USD trades between $1.0903 and $1.1026.

The February US labor market report was much better than expectation on the headline figure but came in mixed internally, leaving the US Dollar on shaky footing overall. Despite the beat, the February headline figure dragged the three-month average lower to +228K from +241K, highlighting the choppy pace of jobs growth (although this is to be expected, especially as the year goes on, as the economy reaches its natural rate of unemployment).

Unfortunately for the US Dollar, the mixed nature of the report – especially the wage internals – have prevented a significant rebound in the USDOLLAR Index. While the USDOLLAR Index initially reacted positively to the data, the seemingly strong report rang hollow. Market participants, on advance to the March 16 FOMC meeting, have been looking for signs that maybe, just maybe, they’ve been too pessimistic on the US economy’s prospects this year; after all, there was only an 8% chance of a rate hike in March ahead of the February report.

Table 1: Fed Funds Futures Contract Implied Probabilities: March 4, 2016 (Post-NFPs)

February NFP Beats Headline Expectations, Mixed at the Margin - USD Neutral

Afterwards, this has fallen to 6%. It appears that without a further firming of future rate expectations (markets pricing year-end Fed benchmark rate at 1.00% now), the expectation of a gradual liftoff cycle remains a burden for the US Dollar. For what it’s worth, the implied probability of September being when the next rate hike occurs increased from 50% pre-NFPs to 52% thereafter.

Here are the data that’s whipping the US Dollar back and forth this morning:

- USD Change in Nonfarm Payrolls (FEB): +242K versus +195K expected, from +172K (revised higher from +151K).

- USD Unemployment Rate (FEB): 4.9% as expected unch.

- USD Average Hourly Earnings (FEB): +2.2% versus +2.5%, from +2.5% (y/y).

- USD Labor Force Participation (FEB): 62.9% versus 62.8%, expected from 62.7%.

See the DailyFX economic calendar for Friday, March 4, 2016

Chart 1: EUR/USD 1-minute Chart: March 4, 2016 Intraday

February NFP Beats Headline Expectations, Mixed at the Margin - USD Neutral

While EUR/USD initially sank from $1.0971 to as low as $1.0903, EUR/USD quickly returned back to its pre-NFP level and traded as high as $1.1026 thereafter. At the time this report was written, the pair was trading at $1.0974. Similar price action was observed across the USD-complex, with USD/JPY posting a notable reversal as well.

Read more: Preview for February US NFPs and Implications for USDOLLAR

--- Written by Christopher Vecchio, Currency Strategist and Jason Cheung, DailyFX Research

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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