• The US has gained a whopping 678,000 jobs in February. 
  • Slower wage growth is due to the return of lower-paying jobs, and markets are set to ignore it.
  • Russia's invasion of Ukraine is already boosting the dollar and it now gets another push.

As if the dollar needs another boost – February's Nonfarm Payrolls have confirmed that the US labor market is on fire. The economy is benefiting from the retreat of the Omicron COVID-19 variant, which further cements the first pandemic-era rate hike from the Federal Reserve. The war will not stop the central bank.

The US gained no fewer than 678,000 jobs in February, on top of an upward-revised and strong 481,000 increase in January. Moreover, the unemployment rate slipped to 3.8% – an excellent number in absolute terms, and even better when coming amid an increase in the participation rate to 62.3%. All these figures beat estimates. 

The disappointing data comes from wages, which remained flat in February and only 5.1% up YoY compared with 5.7% recorded in January. However, that is due to the much-needed return of leisure and hospitality workers who are paid lower wages. Broader employment outweighs a drop in wages. 

The greenback has been benefiting from Russia's invasion of Ukraine, which is now on its ninth day. The latest scare comes from Europe's largest nuclear power station, which was hit by Russian fire and later taken over by invading soldiers. With every day that passes without a resolution, the global economic damage intensifies. 

For the Fed, a 5.1% increase in wages as seen in Average Hourly Earnings continues supportingthe need to raise rates. Substantial job gains go hand in hand with employers competing for employees, pushing their salaries higher – and in turn adding to price pressures. 

Higher energy prices had already shown that such shocks tend to propagate into the broader economy, lifting core prices and salaries. The war has sent oil and gas surging, threatening to further boost inflation. 

While this NFP report is unlikely to push the Fed to a double-dose rate hike, it could convince officials to forecast a steeper path of increases to borrowing costs. That would further underpin the greenback. 

In the shorter term, the mix of a strong jobs report, the ongoing war and the closing of trading for the weekend could encourage investors to take further risks off the table – and send them to the safety of the US dollar

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