Forex today: The mighty Dollar and US yields rise sharply following solid NFP report

  • Forex on Friday was all about the nonfarm Jobs reports which surprised in a big way to the upside. 
  • Markets sharply lowered pricing for a 50bp cut in July.

It was a solid Nonfarm Payrolls report and the headline payroll surprise benefited the Dollar. The 10-year yield rallied to close +4.66% higher and stocks ended lower. The DXY rallied 0.47%, rallying in the 96.72/97.44 range. In the data, the unemployment rate rose to 3.7% just 0.1% above May’s five-decade record and the labor force participation rate climbed to 62.9%, according to the Labor Department on Friday. 

"Still, a mix of low real rates and subdued volatility offers mixed signals for the broad USD," analysts at TD Securities argue. 

US Non-Farm Payrolls: Correlation what correlation?

In Joseph Trevisani report on the event, who is a Senior Analyst at FXStreet, he notes that May’s poor payroll report of 72,000, revised from 75,000, which came three months after February’s 56,000 result and coincided with the ADP private payroll figures of 41,000 in May and 102,000 in June, had raised intense speculation that the labor market was shifting lower, perhaps following the Atlanta Fed’s GDPNow estimate for the second quarter of 1.3% on July 3rd.

However, "the excellent overall payroll report has shifted the tenor of the debate on Fed rate cuts. What was expected to be a cycle of several reductions has become a question of whether the central bank will move at all this month and if so will it be one and then a pause. Aside from the economics, it might be risky for the governors to demur on the 31st with expectations running so heavily to a 25 basis point cut. It would certainly rile the markets, undercutting equity strength and adding to the dollar's."   

Next week investors will focus on the FOMC minutes, Chair Powell's testimony (on Wednesday and Thursday), and CPI data for direction. 

Currency action

  • EUR/USD shed just 20 pips to the downside on the release before sellers pilled in towards 1.27 the figure, ending the day around 1.1220 and down -0.53%.
  • GBP/USD dropped below the June lows for the lowest levels of the year, besides the flash crash low. GBP/USD travelled in a range of 1.2481, recovering from there later in the day, and 1.2587. 
  • USD/JPY travelled between 107.76 and 108.63, tracking a poor performance in US stocks and lifted on a high recovery in the US 10-year yield ending the session 4.66% higher having travelled between 1.937% and 2.070%. 
  • AUD/USD was ending -0.61% having been as high as 0.7028 and as low as 0.6957.
  • USD/CAD was ending the session up by 0.25% having travelled in an erratic 1.3044 1.3136 range on the two jobs reports and a solid performance in oil, supporting Funds (USD/CAD) higher.

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