US Dollar closes its weakest week since December on mixed NFP
|- Nonfarm Payrolls data reported by the US Bureau of Labor Statistics came in higher than expected.
- Average Hourly Earnings for February unveiled a lower figure than expected, while the Unemployment Rate increased.
- Markets are still seeing the first cut in June.
- The index will close out a 1% losing week, its worst performance since December.
The US Dollar Index (DXY) is trading near 102.60 on Friday, recording a loss. The driving factors for these movements largely include the dovish stance of the Federal Reserve (Fed) Chair, Jerome Powell, and the weak performance of the US labor market in February.
Despite the Nonfarm Payrolls (NFP) report for February showing that the US Unemployment rate increased while Earnings mildly eased, markets are still betting that the easing cycle will begin in June. For the next session, the USD may suffer additional losses as investors fear an economic slowdown.
Daily digest market movers: DXY falls to lows after NFPs figures
- February's Nonfarm Payrolls reported by the US Bureau of Labor Statistics exceeded expectations, coming in at 275,000, remarkably higher than the predicted 200,000, indicating robust employment growth.
- On the negative side, the Unemployment rate for February saw an increase to 3.9%, higher than expectations of 3.7%.
- Wage inflation measured by the Average Hourly Earnings missed the consensus to rise by 4.3% YoY.
- US Treasury yields show a mixed performance with the 2-year yield at 4.48%, the 5-year yield at 4.06%, and the 10-year yield at 4.09%.
- According to the CME FedWatch Tool, the odds of Fed interest rate cuts in March and May remain low. Markets are bracing for the first cut to come in June.
DXY technical analysis: DXY bears seize control, oversold signals loom
The DXY's outlook is predominantly bearish despite the Relative Strength Index (RSI) nearing oversold conditions. The RSI's position near 30 often signals the potential for a price reversal. With the Moving Average Convergence Divergence (MACD) presenting rising red bars, the momentum is currently pointing toward the bears.
Further compounding this bearish notion, DXY resides below its 20, 100 and 200-day Simple Moving Averages (SMAs), contributing to an overall downward trend. These SMAs are pivotal technical markers, and their placement below current prices typically strengthens the sellers’ grip.
The bearish price action in recent trading sessions allies with the technical indicators to forge a negative short-term outlook. However, the RSI's near-oversold position may provide some potential for buyers to contest the bear’s hold, but they will struggle against the prevailing negative momentum.
Nonfarm Payrolls FAQs
What are Nonfarm Payrolls?
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
How does Nonfarm Payrolls affect the US Dollar?
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
How does Nonfarm Payrolls affect Gold?
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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