Dollar Drops On Downbeat NFP: EUR/USD, GBP/USD Bounce From Key Supports

Talking Points:

This morning’s Non-Farm Payrolls report out of the United States was not positive, as a headline print of +103k came-in far below the expectation of +188k. Average hourly earnings continued with consistency, printing at 2.7%, but this wasn’t enough to offset USD-weakness as Dollar bears came back with gusto.

The initial reaction in the US Dollar was one of whipsaw, but bears came back in order around 19 minutes after the release, and have largely remained in-control ever since. This has helped to lead to support bounces from key areas in EUR/USD and GBP/USD, while USD/JPY is coming off of a failed test of March highs.

NFP DISAPPOINTS WITH +103K V/S EXPECTATION OF +188K

This morning’s NFP report out of the United States came in below expectations, printing at +103k versus an expectation for +188k jobs to have been added to American Non-Farm Payrolls in the month of March. Also within the report was a 4.1% unemployment rate, matching last month’s figure but coming in a hair above the expectation of 4% flat. We also saw a bump to Average Hourly Earnings as wage gains came in right at the 2.7% expectation, increasing from last month’s 2.6% read.

All in all, this was a fairly downbeat release as the headline number came in well-below the expectation and that weakness wasn’t really offset by overt strength elsewhere in the report. Average hourly earnings remaining above 2.5% is something that could be construed as USD-positive as this feeds into inflation which, in-turn, drives the Fed’s expectations for future rate policy. But, is a relatively similar read of Average Hourly Earnings going to be enough to drive expectations for more rate hikes out of the Federal Reserve this year?

The big question at this point is whether we’re looking at two or three rate hikes out of the Fed for the remainder of this year. At that last FOMC rate decision in March, the median expectation was at two hikes for the rest of 2018; but given the outlay of the dot plot matrix, it appeared as though we were very close to seeing that median expectation bump-up to three more hikes. The next set of projections are due at the Federal Reserve’s rate decision in June, so we have some time to incorporate additional data before we get that next dot plot matrix.