- The Greenback is back in the green on strong NFP numbers
- Focus shifts now to Fed Chairman Jerome Powell speaking.
- The US Dollar Index is back above 102.00 and looks to close above the level before the weekend.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, is rallying after some strong Nonfarm Payrolls numbers. China is lashing out at the US tariffs by imposing a 34% tariff on all US goods from April 10th, a day after the US tariffs will be imposed. The focus now shifts towards Federal Reserve (Fed) Chair Jerome Powell’s speech up next.
On the economic calendar front, the Nonfarm Payrolls release (NFP) came in upbeat at 228,000, far from the consensus view of 135,000. The most positive forecast was for 200,000, which was an outside surprise. Now focus shifts to the Federal Reserve to see if Fed Chairman Powell can alter or support the current stance in the DXY.
Daily digest market movers: Outside surprise
- US employment data for March has been released:
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- Nonfarm Payrolls came in at 228,000, beating the 135,000 consensus and upbeat compared to 151,000 in February.
- The monthly Average Hourly Earnings remained stable at 0.3%.
- The Unemployment Rate came in at 4.2%, a touch higher than the 4.1% from February.
- At 15:25 GMT, Federal Reserve Chair Jerome Powell speaks about the economic outlook at the Society for Advancing Business Editing and Writing (SABEW) Annual Conference.
- At 16:00 GMT, Fed Governor Michael Barr will speak on AI and Banking.
- Fed Governor Chris Waller will speak at 16:45 GMT on Payments at a New York Fed Conference.
- Murder on the trading floor with losses in Europe around 3%-4% while US equities are dipping near 2%.
- According to the CME Fedwatch Tool, the probability of interest rates remaining at the current range of 4.25%-4.50% in May’s meeting is 68.1%, coming from 81.5% last week. For June’s meeting, the odds for borrowing costs being lower stand at 92.6%, whereas only last week, the odds were roughly 81.1%.
- The US 10-year yields trade around 3.94%, a fresh five-month low with the next low to bear near 3.69% from the beginning of October 2024.
US Dollar Index Technical Analysis: Back in the green
The pendulum is swinging for the US Dollar Index, with strength on the left and weakness on the right. On the left, there have been years of US Dollar strength, which was perceived as a market standard. However, since the start of March – with the defense budget spending bill in Germany and US President Donald Trump in office – the pendulum for the DXY has swung. More US Dollar weakness is likely once the tariff impact on the US economy starts to take its effect. As stagflation and recession fears are picking up, the DXY could easily fall below 100.00 later this year.
With the sizable downward move on Thursday, some support levels have turned into resistance. The first level to watch out for is 103.18, which has been held as support throughout March. Above there, the 104.00 pivotal level and the 200-day Simple Moving Average (SMA) at 104.89 come into play.
On the downside, 101.90 is the first line of defense and it should be able to trigger a bounce as the Relative Strength Index (RSI) momentum indicator is issuing warnings of oversold conditions on the daily chart. Maybe not this Friday, but in the coming days, a break below 101.90 could see a leg lower towards 100.00.
US Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
