US Dollar Slumps then Jumps on Shaky December US NFP Report
- Headline jobs growth comes in at +148K, while last month’s print was revised higher from +228K to +252K.
- US wage growth steady at+2.5% y/y asthe unemployment rate holding at 4.1%, a 17-year low.
- The US Dollar ultimately settled lower following the data, with the DXY Index dropping from 92.04 to 91.99 at the time this report was written.
The first major economic data release of 2018 has left the US Dollar reeling. The US economy saw jobs growth increase by +148K in December, missing expectations of +190K. Yet other parts of the report painted a mixed picture of labor force strength. Even though the unemployment rate (U3) held at the cycle low and 17-year low of 4.1%, the labor force participation rate held at 62.7%.
It’s important to keep in mind that the US economy doesn’t considerable such strength in the headline figure to maintain the unemployment rate at its current “full employment” level. According to the Atlanta Fed jobs calculator, the US economy needs to add +109K jobs per month over the next 12-months in order to keep the unemployment rate at 4.1%.
To that end, the most important part of the jobs report is the wage growth figure, not the headline jobs figure. Coming in at +2.5% (y/y) unchanged, there appears to be little evidence that the economy at “full employment” is doing much to generate higher wages and thus, inflation. Sustained low inflation below the Fed’s +2% medium-term target may give traders pause on projecting the Fed’s rate hike timeline.
As far as near-term rate hikes are concerned, this report has had minimal impact. Fed funds rate expectations continue to price in March 2018 for a rate move, with hike odds holding at 80% after the data. Overall, the December US Nonfarm Payrolls report was a mixed bag that does not improve the US Dollar’s standing, funamentally or technically.
Here are the data driving the greenback this morning:
- USD Unemployment Rate (DEC): 4.1% as expected unch.
- USD Change in Nonfarm Payrolls (DEC): +148K versus +190K expected, from +252K (revised higher from +228K).
- USD Labor Force Participation Rate (DEC): 62.7% unch.
- USD Average Hourly Earnings (DEC): +2.5% as expected unch (y/y).
Chart 1: DXY Index 1-minute Chart (January 5, 2018 Intraday)
Immediately following the data, the US Dollar traded lower versus the Euro and the Japanese Yen, with the Dollar Index (DXY) dropping from 92.04 ahead of the data, to as low as 91.78 before whipsawing back up to 91.99 at the time this report was written.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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