NFP Quick Analysis: Superb data insufficient to stop the Fed from another double cut, USD vulnerable

The American job market looks great – or at least that was the picture in February. There is nothing not to like in the data. Non-Farm Payrolls rose by 273,000, smashing expectations, while wages advanced by healthy rates of 0.3% MoM and 3% YoY. 

Some suspected that the 2020 Census would boost government jobs like in 2010 – but special hiring added only 7,000 positions. Moreover, revisions to January and December added 85,000 jobs and the jobless rate dropped to 3.5% – the multi-decade low that was seen in 2019. 

An increase of 175,000 positions was on the cards for February. Average Hourly Earnings were forecast to advance by 0.3% monthly and 3% yearly. The Unemployment Rare was predicted to remain steady at 3.6%. 

The US dollar edged up in response to the data, but that may be temporary – there was another critical note from the Bureau of Labor Statistics.

Officials said that coronavirus had no impact. 

That makes the data, significant as it is, to already be outdated. 

Coronavirus and the Fed

The Federal Reserve took the rare step of announcing a rate cut in an unscheduled meeting. The world's most powerful central bank not only surprised with the timing but also with the dose – 50 basis points, double the standard of 25bp. 

It acted in response to coronavirus, which continues spreading around the world and as infections rise in the US. While the Fed's move may be inefficient – trying to boost demand when the problem is supply – markets want more. Stocks are sliding once again and bonds are reflecting a 100% probability of another 50bp cut in the Fed's scheduled meeting on March 18. 

The undoubtedly impressive figures are not enough to cause second thoughts – not on the actual reduction of borrowing costs nor on the dose. 

Moreover, as mentioned earlier, the statistics do not reflect the impact of the virus. It takes time for an economic shock to move from influencing growth to shaping the employment market.

Figures for March may provide more insights. Nevertheless, the fast-pace of events means that any past-looking data – even if it is for the month that has just ended – is already stale. Soft, forward-looking data may have more impact, but it also competes with the fast pace of news.

Dollar ready for a new dive

On this background, the US dollar has room to resume its falls. The US economy is outperforming other developed economies and still enjoys higher interest rates. Nevertheless, the US economy has more to lose and the Fed has more room to cut. The direction of travel and its pace is more significant than the pre-crisis situation. 

This Non-Farm Payrolls report holds nothing to slow that pace. 

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