The U.S. Dollar is getting crushed this morning following the Employment Situation’s numbers coming in weaker than expected.
Overview
While April’s figures were supposed to be showing an addition of 240K jobs, the actual figure was just 175K. The Unemployment Rate meanwhile increased to 3.9% from 3.8%, and the Average Hourly Earnings for the year fell after slow progress in both April and March. Overall, the data paints a picture of the economic situation in the United States finally cooling off which perfectly accompanies the “dovish” mood demonstrated by Fed Chairman Jerome Powell in his press conference.
The only way the Buck was finally going to take a major hit was if the Fed was able to dissuade markets from fearing another interest rate hike and if economic indicators finally floundered some. We are getting this combo today as we begin a new month that could potentially mean a major turnaround from the dominance Buck experienced to end Q1 and start Q2. Clearly, the U.S. is far from being in a situation of downward pressures, but a dented labor sector is the first sign that perhaps a rate cut is indeed coming sooner than odds have recently calculated. The chances for a rate reduction to happen in July are now 34.0%. As we foresaw, the week was going to be one for the Buck to tumble, and factors for that to occur are showing up.
What to Watch Today…
- Monex USA Online is always open.
MXN ⇑
The Mexican Peso is trading at its best level in 2 weeks, surging by over half a percent as the U.S. copes with its smallest job gain in six months. Peso swings have been a bit wild as the currency is also pulled away in different directions based on the global mood. It is worth noting that along with MXN, other Emerging-Market currencies are benefitting from renewed talks in Saudia Arabia with the U.S. about a potential peace agreement for Israel and Iran over the recent spat and the conflict with Hamas since October. Domestically speaking, we will get key data in the form of the Consumer Price Index as well as Industrial Production in the middle of next week. Banxico’s policy decision announcement will be next Thursday.
EUR ⇑
The Euro has improved to its best level over the Buck since April 10th following a major rally based on renewed hopes the Fed has evidence to start cutting into borrowing costs. While a rate cut in the June 6th European Central Bank meeting is basically guaranteed, the prospects of looser monetary policy are not affecting the shared currency in a negative way. While the low levels of growth in the Euro-zone merit monetary stimulus, that very idea is what can also help propel the value of the Euro since it is expected that after beating recessionary pressures and a period of loss in production, the continent will quicken the pace of recovery after restrictive borrowing starts going away. Euro progress may not just be due going forward to a weakening of the situation here in America.
