US Dollar secures a losing week despite strong NFP


  • The DXY Index rallied to 104.60 and then stabilized at 104.30.
  • The BLS reported higher-than-expected NFP employment figures from March.
  • US Treasury yields soared after the release of the labor data.


The US Dollar Index (DXY) is currently trading at 104.30, trimming steep initial gains on Friday following a surprising beat from the Nonfarm Payrolls (NFP) report. The strong labor market scene, underscored by the better-than-anticipated NFP report for March, solidifies the Dollar's bullish outlook. That being said, the odds of a rate cut in June from the Federal Reserve (Fed) remain high and steady.

US Economic data will continue to guide the timing of the Fed's easing cycle, with consensus still pointing to a June initiation. Next week, markets will eye Consumer Price Index (CPI) figures for March.

Daily digest market movers: DXY soars as labor market data exceeds expectations

  • The US Bureau of Labor Statistics (BLS) announced an increase of 303K in March jobs, which greatly surpassed the expected 200K.
  • February's previous NFP growth of 275K was revised downward to 200K.
  • There was a minor drop in the Unemployment Rate from 3.9% to 3.8%.
  • The Labor Force Participation Rate witnessed a slight bump from 62.5% to 62.7%.
  • The annual rate of wage inflation, illustrated by Average Hourly Earnings, was adjusted down to 4.1%, aligning with forecasts.
  • Regarding the Fed’s stance, officials from the Fed are advising patience before decreasing rates, delivering a mild reinforcement for the USD. 
  • Regardless of this, the market continues to project a June rate cut at around a 70% likelihood, followed by an approximated total easing of roughly 75bps this year.
  • US Treasury yields are rising with the 2-year yield at 4.70%, the 5-year yield at 4.35%, and the 10-year yield at 4.36%. 

DXY technical analysis: DXY manifests bullish momentum domination in short-term outlook

As the indicators on the daily chart reflect, the DXY indicates a positive inclination with a favorable tilt on the Relative Strength Index (RSI). The RSI is currently exhibiting a positive slope in positive territory, which echoes the bullish force’s dominance over selling pressure in the immediate scenario. Meanwhile, the Moving Average Convergence Divergence (MACD), despite having flat green bars, still supports the bullish prospects.

Furthermore, the index position concerning its Simple Moving Averages (SMAs) further corroborates this assertion. The DXY positioning above the 20, 100, and 200-day Simple Moving Averages (SMAs) suggests the bulls are asserting their control. As long as the index remains above these levels, the buyers have reason to remain optimistic.

 

Nonfarm Payrolls FAQs

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.

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.

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.

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.

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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