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USD Index deflates to 104.60 on mixed US NFP

  • The index extends the drop to 3-day lows near 104.60.
  • US yields drop further in the wake of the US jobs report.
  • The US economy created more jobs than initially estimated in February.

The greenback now loses further ground and breaks below the key 105.00 barrier when tracked by the USD Index (DXY) on Friday.

USD Index weakens post Payrolls

The selling pressure picks up pace around the greenback as market participants continue to digest the mixed US jobs report for the month of February.

On the latter, the US economy created 311K jobs, once again surpassing consensus for a gain of 205K jobs. Furthermore, the December print was revised to 504K (from 517K).

Somehow removing optimism from the report, the Unemployment Rate increased to 3.6% and the Average Hourly Earnings – a proxy for inflation via wages – rose 0.2% MoM and 4.6% from a year earlier. Additionally, the Participation Rate increased marginally to 62.5% (from 62.4).

Following the release of the February Payrolls, investors now see a 25 bps rate hike as once again the most likely scenario at the Fed’s gathering on March 22, which also weighs on the mood surrounding the buck and props up the corrective decline.

What to look for around USD

The index loses further ground as traders now reduce their bets on a 50 bps rate hike by the Fed later in the month.

The dollar, in the meantime, succumbs to the better tone in the risk-associated universe and gives away part of the recent strong rebound sponsored by hawkish messages from Fed speakers and by Chief Powell at both his testimonies earlier in the week.

In addition, the still elevated inflation as well as the solid labour market and the resilient economy in general also seem to underpin the tighter-for-longer stance from the Federal Reserve.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Monthly Budget Statement (Friday).

Eminent issues on the back boiler: Rising conviction of a soft landing of the US economy. Persistent narrative for a Fed’s tighter-for-longer stance. Terminal rates near 5.5%? Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is retreating 0.69% at 104.55 and the breakdown of 104.09 (weekly low March 1) would open the door to 103.53 (55-day SMA) and finally 102.58 (weekly low February 14). On the other hand, the next up-barrier aligns at 105.88 (2023 high March 8) seconded by 106.62 (200-day SMA) and then 107.19 (weekly high November 30 2022).

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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USD Index deflates to 104.60 on mixed US NFP