The US dollar fell across the board yesterday and the Dollar Index (USDX/DXY) fell to 96.67 – its lowest in nearly seven months – following a highly disappointing US jobs report.
For traders, the monthly report, which includes numbers for US non-farm payrolls, average hourly earnings growth, as well as the unemployment and participation rates, is the single most important data release on the economic calendar, with the exception of scheduled central bank announcements, and creates significant intra-day volatility in the majority of exchange rates.
Heading into the release, there were high hopes for some strong numbers, especially following Thursday’s ADP non-farm employment data, which crushed expectations for +181k new jobs in May with an actual print of +253k.
Just as ADP forecasts had been crushed, so were those high hopes for the real jobs figures when at 12:30 GMT on Friday investors learned that the non-farm employment change for the month of May was only +138k, far below the market forecast for +181k; that April’s reading of +211k was revised down to just +174k; that a fall in the unemployment rate from 4.4% to 4.3% was almost entirely explained by a decline in the participation rate, which fell to 62.7% from 62.9%; that average earnings growth failed to break 0.2%, and that April’s earnings had been revised down from 0.3% to 0.2%.
Head of FX strategy at Saxo Bank, John Hardy, said shortly after the report that “this was pretty easy on the analysis side; this was a bad one across the board.”
Yesterday’s numbers were a useful reminder to investors of the all-to-often loose correlation between ADP data and the official non-farm data published by the US Bureau of Labor Statistics.
The euro rose 0.6% against the dollar to 1.1280 after the release – its highest since last November.
The Australian dollar, Swiss franc and Japanese yen all gained around 0.9% against the greenback. USD/JPY, USD/CHF and AUD/USD ended the week at 110.44, 0.9624 and 0.7443 respectively.
The Canadian dollar also gained against USD but only marginally. USD/CAD ended the week at 1.3485.
The British pound surprisingly was flat against the dollar yesterday and lacked volatility, producing a high-low range of only 58 pips on the day, which is well below average. Cable’s high and low were also comfortably held within Thursday’s extremes. GBP/USD ended the week at 1.2889.
The best performing FX major yesterday was the New Zealand dollar, which gained 1.2% against USD and which climbed to a three-month closing high of 0.7145.
Yesterday’s poor data did not, however, alter market expectations for a US rate hike this month. Market commentators still see a quarter-point hike to 1.25% as something of a certainty and prices in the CME fed funds futures indicate a 95% probability of this happening when the Federal Reserve meet in twelve days’ time.
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